History often repeats in markets.
Let’s start with November 1928.
Herbert Hoover won the presidency during one of the strongest market rallies in American history.
The decade leading up to his victory saw remarkable stock market performance, pushing valuations to historic highs.
A few months after his win, Black Tuesday struck, triggering the Great Depression and a devastating decade-long market decline.
Similar patterns emerged with Nixon’s 1972 victory and Bush’s win in 2000.
The S&P 500 took 8 years to recover after Nixon’s win, while Bush’s election marked the dot-com bubble’s peak, ending a 10-year streak of rising stocks and beginning a decade of decline.
Today, the market has seen a significant rally following the elections.
But, despite experiencing one of the strongest rallies in history, public sentiment tells a troubling story.
The University of Michigan’s consumer sentiment survey, tracking public confidence since the 1950s, shows readings at historically low levels.
This pessimism has persisted throughout the Biden administration, matching depths seen during the 2008 financial crisis.
Historically, such low sentiment levels have consistently coincided with economic downturns.
A Critical Signal: Interest Rates
Part of Trump’s appeal this year was his focus on stronger economic growth, which resonated with many voters.
Following Trump’s win, the stock market reacted positively, fueled by promises of tax cuts and deregulation.
But, similar optimism also surrounded the elections of 1928, 1972, and 2000
In each of those cases, US interest rates were near where they are today – around 5%.
More importantly, in each of these historic cases, signs of a recession were present well before the election.
Each instance featured an inverted yield curve, where short-term rates exceeded long-term rates.
This indicates that the incoming presidents had limited control over the economic outcome.
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Presidential Impact on Markets
Even though incoming presidents had limited control over the economic outcome, Trump emphasizes his economic policies as crucial for preventing another Great Depression.
He anticipates tax cuts and deregulation as necessary policies to stimulate growth.
But would his policies actually prevent a downturn?
Consider Hoover’s presidency in 1928.
His Revenue Act reduced taxes, and his pro-business, private sector growth policies closely resembled Trump’s approach.
The market initially liked these measures, soaring for almost another year.
Yet these policies couldn’t prevent the most severe downturn in history.
Nixon in 1972 and Bush in 2000 followed similar pro-growth, free-market approaches.
Neither could prevent the recessions that followed their elections, suggesting the seeds of economic decline were sown well before their victories.
So based on historical examples, it is clear that presidents have limited power over the business cycle and financial markets.
They can prolong or shorten economic booms or recessions, but can’t outright prevent downturns.
However, that doesn’t mean that a crash is imminent right now.
For instance, stocks rose for another year post the 1928 elections.
In fact, today’s market enjoys a rare combination of favorable factors:
- Stable economic growth
- Falling inflation
- Fed rate cuts
This combination is rare and has historically been supportive of market gains in the near-term.
Current Market Outlook
The S&P 500’s current technical structure shows promise.
We’re watching a potential breakout above key trend line resistance.
If successful, this could open a path to 6,500 points by year-end.
This technical strength, combined with supportive macro conditions, suggests continued near-term momentum.
We maintain a constructive market outlook through year-end.
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- Average profit in 2024 = 17.37%
- Average loss in 2024 = 3.78%
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Read more: Trump Is About to Make Stocks Go Absolutely Crazy
