Even though the control of the U.S. House of Representatives is still being sorted, stocks and bond yields have registered significant gains post-election. The S&P 500 noted a week-on-week increase of 4.7%, while a group of tech giants known as the Magnificent 7 – Microsoft, Meta Platforms, Amazon, Apple, NVIDIA, Alphabet, and Tesla – jumped by 8.3%.
A similar stock boost has been observed historically after elections. Despite uncertainties in the political landscape, the stock market has often soared two-thirds of the time post-election until the year-end, with a median rise of 3.7%.
While election results do not entirely dictate the performance of stocks, they are a significant influencer. For example, President Trump’s victory led to a surge in expectations for better economic growth. Consequently, the more economically sensitive cyclical stocks saw a spike in their performance. Further, small-cap stocks, typically more economically sensitive, have experienced a notable rise post-election.
Additionally, if Republicans secure the House, a corporate tax cut is likely, benefitting the more domestically focused companies and small-caps. Another probable impact of the Trump administration may be seen in the form of reduced regulatory burdens, which has already benefitted bank stocks.
However, politics is just one aspect among many that influence stocks, and decisions shouldn’t be based solely on political beliefs. The Federal Reserve’s policies and incoming economic data will also play a crucial role in the future growth of stocks.