Will Equity Markets Surge Under New US Presidencies?

January 22, 2025

As the curtain rises on a new US presidency, a question that often looms large for investors is whether equity markets will see a substantial surge. Historical data, as analyzed by Greg Boland, Chief Strategy Officer at Tiger Brokers, suggests that the equity markets have traditionally exhibited significant growth during the first year of a new president’s term. This pattern has been observed across multiple administrations, with notable examples being Barack Obama, Donald Trump, and Joe Biden, all of whom saw robust market increases in their inaugural years. With market analysts predicting possible growth of up to 25-30% in the coming year, many investors are eagerly anticipating the unfolding financial landscape.

Historical Performance of the S&P 500

A closer look at the historical performance of the S&P 500 during the beginning of the last four presidential terms reveals a pattern of substantial increases. Under President Joe Biden, the S&P 500 recorded a growth of 24.9% in his first year. His predecessor, Donald Trump, saw a 17.8% increase, while Barack Obama’s first term saw the index surge by 31.2%. On the flip side, the average growth rate of the S&P 500 since 2000 stands at approximately 5.9% per year. These figures clearly indicate that the stock market exhibits a markedly higher growth rate during election years compared to non-election years.

The significant market rally observed during each of these presidential terms can be attributed to various causative factors. One critical element to consider is the prevailing economic conditions at the time each president assumed office. For instance, President Obama’s first term began in the aftermath of the 2008 financial crisis, which contributed to the exceptional market growth of over 30% in 2009. Similarly, other economic policies and fiscal measures initiated by incoming administrations often play a pivotal role in shaping market trajectories, thereby encouraging investor optimism and resulting in stock market surges.

Despite these optimistic historical trends, investors must also consider other market influences that could potentially dampen growth projections. External factors such as global economic conditions, geopolitical crises, and domestic policy decisions can significantly impact market performance. As such, while historical data offers valuable insights, caution and a comprehensive understanding of the broader economic context are essential for making informed investment decisions.

Australian Market Response

While the optimism surrounding the US equity markets is indeed buoyant, it is essential to evaluate how other global markets, particularly the Australian market, respond to a new US presidency. The Australian Securities Exchange (ASX 200) has also shown a positive correlation with the US market under new presidencies but not to the same extent. For instance, under President Biden, the ASX 200 experienced a growth of 10.4%, compared to 6.6% under Trump, and 36.7% during Obama’s first term. These numbers indicate that while the Australian market does benefit from a change in US leadership, the growth is more modest than its American counterpart.

Several factors contribute to this disparity in market performance. The Australian economy is significantly influenced by its trade relationships, particularly with China. Given China’s role as Australia’s largest trading partner, any geopolitical tensions or trade policies initiated by the US that affect China can indirectly impact the Australian markets. For example, former President Trump’s proposed tariffs on Chinese goods created uncertainties within Australian markets, underlining the interconnected nature of global economic policies and their trickle-down effects.

Furthermore, domestic economic conditions and policy decisions in Australia also shape its market responses. Persistent global inflation and the Australian Reserve Bank’s commitment to maintaining high cash rates until inflation is under control are examples of internal factors that may curb market growth. These conditions create a complex investment landscape that requires Australian investors to carefully navigate both international influences and local economic policies.

Potential Market Headwinds

While the historical performance of equity markets under new US presidencies may be encouraging, it is crucial to consider potential headwinds that could affect future market growth. One notable concern is the potential impact of proposed policy changes, such as trade tariffs, which can affect global trade dynamics. For instance, Donald Trump’s campaign promises of imposing tariffs had far-reaching implications, particularly for countries like Australia that have strong trade ties with China. Any disruption in US-China trade relations could consequently impact Australian markets and lead to a ripple effect on global economic performance.

Another critical factor to consider is the ongoing challenge of managing inflation. As the global economy grapples with inflationary pressures, central banks, including the Australian Reserve Bank, have taken measures to control rising prices. The decision to maintain high cash rates until inflation is brought under control creates an environment of monetary tightening, which can constrain market growth. Investors must remain vigilant to these changing economic policies and their potential impacts on equity markets.

In addition to these external factors, investor sentiment and market psychology play a significant role in shaping market trajectories. The election of a new US president often brings with it a sense of anticipation and uncertainty. While initial optimism may drive market rallies, the subsequent economic policies and decisions made by the new administration can either bolster or dampen investor confidence. As such, a balanced perspective that takes into account both historical performance and current economic conditions is essential for making informed investment choices.

Conclusion

As a new US presidency begins, investors are keenly wondering if equity markets are poised for a significant rise. Historical trends, examined by Greg Boland, Chief Strategy Officer at Tiger Brokers, indicate that equity markets have generally shown substantial growth during a president’s first year in office. This trend has been consistent across various administrations, including Barack Obama, Donald Trump, and Joe Biden, who all experienced strong market gains in their initial years.

While past performance doesn’t guarantee future results, market analysts are optimistic, predicting potential growth rates of 25-30% for the coming year. Given these projections, investors are eagerly watching the financial landscape, hopeful for profitable opportunities. The anticipation is fueled by the historical precedent of economic vigor accompanying new presidential terms, which traditionally bring fresh policies and renewed investor confidence. As financial experts weigh in, the anticipation of robust market performance under the new administration remains a focal point for many in the investment community.

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