Market Watch: The ‘Trump Bump’ – how long can it last?

It was dubbed the “Trump Bump” in 2016 when Wall Street rallied after Donald Trump’s election victory. Eight years later, history appears to be repeating, with the S&P 500 and Nasdaq indexes up by 5% since election day. The more industrial Dow Jones index is up by more than 7%.

“There are whole parts of the market which have responded very favourably to the red wave,” says Pie Funds chief investment officer Mike Taylor.

“Energy stocks have done particularly well, financials have done well and, of course, we can’t go past Tesla and Bitcoin.”

All of these sectors have soared on expectations Trump will run favourable policies – cutting regulations and taxes.

Whether this “Trump Bump” will be as sustained as it was in 2016 remains to be seen. The S&P 500 rose steadily from 2016 to 2018 (underpinned by low interest rates) before hitting some volatility. But it regained its bullishness through 2019 until the first Covid crash in early 2020.

Many economists and market analysts fear Trump’s promised policy proposals – universal tariffs and big tax cuts – will be inflationary and push interest rates up.

That could limit the prospects for a long bull run in this term.

“I’m not so sure about a crashing to earth, but I think there’ll be a bit of a reality check across a few of the things that have run,” Taylor said.

Mike Taylor, founder and chief investment officer at Pie Funds.

“However, we still don’t know what is going to come out over the next four years, and of course, it could be particularly favourable for these sectors.”

Trump’s pick for the US Treasury secretary, Scott Bessent, has said he wants to pump an additional three million barrels of oil for the US.

“I think they do about 12 or 13 [million] barrels a day at the moment. So that’s a significant increase. If that [were] to happen, it would be very favourable for the oil and gas sector”.

In terms of bond yields, the market was initially concerned Trump’s policies might be inflationary so yields were pushed up, Taylor said.

“But then again, as I just mentioned, the proposed Treasury secretary is supposed to be someone who might potentially temper or water down some of the tariffs that have been proposed. So, Wall Street has kind of looked favourably upon that appointment.”

Bond yields fell following the appointment of Bessent but rose again after Trump posted a social media post threatening 25% tariffs in both Canada and Mexico.

While nobody could pick exactly what policies the Trump administration landed on, the direction was clear, Taylor said.

“There’s definitely an America-first policy.”

If you consider Europe as an example of somewhere tariffs could have a negative impact, the difference between the performance of the US market and European stocks since the fifth of November is about 10% (change between the two markets).

“That’s not insignificant in just under a month,” Taylor said.

“Europe’s got its own issues. Germany and France are not doing so well. Investors are voting with their feet and believing that the next four years are going to be very favourable for us companies and US stocks.”

Chinese outlook

For New Zealand, China’s economy remains central to our economic success. This year, the economy has been under pressure due to a floundering property market and low consumer confidence.

Taylor has just returned from a visit to China and says it largely confirmed everything we’ve been reading about the economy.

“You can see the evidence in the fact the luxury shops aren’t doing very well,” he said

However, parts of the economy were still performing.

“In particular, domestically produced Chinese electric vehicles are doing very well, and you see a lot of those on the roads.”

A positive thing for New Zealand was that Chinese government officials were looking quite favourably upon the country at the moment, he said.

“We’ve got a good relationship, and I suppose they’re looking for friends at the moment given that one of their big trading partners [the US] is wanting to impose significant tariffs.”

The Market Watch video show is produced in partnership with Pie Funds.

Liam Dann is business editor-at-large for the New Zealand Herald. He is a senior writer and columnist, and also presents and produces videos and podcasts. He joined the Herald in 2003.