Trump in 2024 - What does it mean for markets?

In 2016, Hillary Clinton was a clear favourite to become the 45th President of the United States. Most pundits were amazed that her Republican rival, Donald Trump, had progressed this far in the contest. He wasn’t considered a serious contender.

We all know the outcome.

Within four months of Trump’s victory, the US share market rose 20 per cent. Over the full course of Trump’s Presidency, the Dow Jones Industrial Average (DJIA) rose 56 per cent – from around 19,750 to 30,600. It’s a performance Trump claimed credit for on a number of occasions.

Now, after losing the last election, Donald Trump is back. It’s 18 months until we’ll know whether he can pull off another unlikely victory, but he’s already in full campaign mode.

Which raises the question – what impact would another term of Trump have on equity markets?

Past Presidents by performance

The 56 per cent gain during Trump’s term provided investors with some solid returns. But markets have fared better under previous Republican Presidents.

Over Ronald Reagan’s second term, the DJIA rose 77 per cent. There was a 65 per cent rise during Dwight Eisenhower’s first term, and back in the 1920s, shares gained 157 per cent over the course of Calvin Coolidge’s second term of office.

Conventional wisdom suggests markets are more comfortable with Republican Presidents than the Democrat alternative. If that’s true, one would expect some solid gains in the market in the months after the election result was known.

Turns out it’s only partly true.

The market honeymoon

In nearly every Presidential election of the modern era, share markets have posted strong gains in the months after the poll – regardless of the victor.

Most recently, the DJIA gained 15 per cent in the four months following Joe Biden’s win over Trump.

There’s one exception though. Barack Obama won his first term at the tail end of the Global Financial Crisis when financial markets were still falling. After winning a second term, the DJIA rose 9 per cent.

And over Obama’s two terms, the DJIA gained 148 per cent.

What about Australia?

The huge differences between the Australian and US electoral systems aside, Aussies seem far more relaxed about the outcome of Federal elections.

Yes, there’s often plenty of scaremongering prior to elections about what an opposing party would do to the economy if elected. The truth is, in terms of commitment to a market-based economy, our two major parties are very similar.

In fact, even a change in government is often treated indifferently by financial markets. A shock to the financial system in the US, like we saw with the GFC, will almost certainly have a far greater impact on the Australian share market than any change of political leadership at home.

Trump in 2024

Can Donald Trump make an unlikely return to the Presidency next year? From an Australian perspective it seems unlikely, but one betting agency is giving him a 28.6 per cent chance, trailing Biden with 36.4 per cent.

They seem unlikely odds. But if history is a guide, one thing is far more probable – that the US share market will be significantly higher at the end of the next Presidency, no matter who is in the chair.

Disclaimer: This article is prepared by Tom Ellison. It is for educational purposes only. While all reasonable care has been taken by the author in the preparation of this information, the author and InvestmentMarkets (Aust) Pty. Ltd. as publisher take no responsibility for any actions taken based on information contained herein or for any errors or omissions within it. Interested parties should seek independent professional advice prior to acting on any information presented. Please note past performance is not a reliable indicator of future performance.