How Does Trump's election affect Stock Markets
For some reason, many people were keen on the stock market during this recent election. Well, was it because of the fears that President-elect Trump allayed in them?
We can only guess! But somehow, the election add a positive affect on stock markets performed well after the elections. The market rose by nearly 8 % after the election and can be said to have done well. The confidence in the economy strengthened significantly.
The general outlook of the economy by various quarters has improved substantially. The current outlook is leaning toward an optimistic side after the current election with many US citizens having hope in Trump’s government.
What Brought the raise in stock market price?
For starters, we can say it is due to the tax cuts for individuals and corporate entities that Trump promised to effect once he gets in office in 2017. Trump pledged to slash corporate taxes from 25 percent to 15 percent. Thus, investors have held to this pledge by refraining from selling stocks until the time when this pledge is implemented.
Another reason could be the infrastructural development that Trump has promised. Trump pledged to focus energies and resources on programs that would stimulate growth in the construction industry and also the steel manufacturing industry among other sectors.
His aim is to create multitudes of job openings in these industries. In addition, he pointed out that he would focus on developing the water, telecommunications, transportation and energy sectors in a bid to strengthen the economy.
Thus, investors in the stock market are holding on to this pledge as they are more concerned with the long-term prospects of the market.
To understand the implication of the election on the stock market, we can take a look at the plight of interest rates. The Federal Reserve has recently made an announcement of an increase in interest rates. It further implied that there would be further raises in 2017; about three raises.
What does this imply? This move connotes the optimism that people have with regard to the US economy. A higher interest rate implies a stronger economy, and this raise will be timely now considering the plans that Trump has with regard to tax reform and infrastructural development.
For investors in the stock market, the combination of high-interest rates and infrastructural spending is a positive sign of a better economy in the future. This, by all means, is a stimulus to trade.
What effects Had Trump election on the Stock Market?
A closer look at the S&P 500 showed a positive trend after the election. Specifically, on Mondays, the index rose to an all-time high. In fact, there has not been such a close ever since August. After the election, the index rose to about 3 percent.
When we look at the Dow Jones, there was an initial shock on the night of the elections which sent it sprawling down 800 points. However, it rose to an all-time high after the elections almost reaching the 19,000 level.
A closer look at the NASDAQ shows another rise to an all-time high; albeit it’s struggling after the election. It also reached a record high, which was long overdue – since September.
On the commodities market, a price rally was experienced. The prices rose to about 3 percent.
Well, it was predicted that many stocks would plummet after the election specifically in the event that Trump would upset Hillary Clinton. There is evidence, to that effect, that some stocks plunged on the night of the election.
But, it did not last as stocks were seen to be rising on the Election Day and after the election. The key factors that influenced this rise were the pledges that Trump made. In a way, the fear that investors had about Trump were outweighed by the promises that he made with regard to tax reform, infrastructural development and also on the aspect of rolling back certain regulations.
These regulations, according to him, were an impediment to job creation and were burdening businesses in the United States. When talking about rolling back regulations, we cannot fail to mention Obamacare.
Trump for some reason has pledged to repeal and replace it. We can wait to see how this will progress. But, as far as passing this motion is concerned, he is assured of success as long as he uses a Republican Congress.
When we take a look at Global markets, they trembled when it was inevitable that Trump was winning. Perhaps it was because of a general fear that he would start a trade war.
The general fear that various economists have with regard to the plans that Trump has, is the impact on national debt. It is said that National debt is bound to increase by $5 trillion or even more.
Economists fear Trump affect on stock market
Again, there’s also a general fear from economists that he could start a trade war especially with his continual talk of manipulating currencies and tariffs.
While investors are cognizant of this, they are not focusing so much on whether he would start a trade war, but are placing their focus on the long-term economic benefit to the US economy when he implements all his pledges.
Trump has continued to hold to the stand that even with the increasing national debt, the economic growth that would result is substantial and would compensate for it. According to Trump, there is no need for increasing taxes in order to mobilize funds to finance the infrastructural developments.
In essence, supporters of this increase in debt argue that the United States is better poised to borrow at significantly low-interest rates. The justification given for issuing debt is based on the lag in terms waters systems, road and rail systems and other crucial infrastructure.
All in all, the overall implication of Trump’s win is a sustainable gain in confidence in the economy from all sides of the political divide. Ideally, from a fiscal point of view, the economy is bound to benefit in the long term.