Will 2024 Echo 2016? What a Trump Win Could Mean for the Stock Market & Economy

First off investors, this is 100% a thought piece not an opinion piece. And full disclosure, I have personally met DJT at least 3 times in my business career as part of investment teams, in business settings when he and his companies were looking for financing and chosen not to do business with his companies I have chosen not to do business with DJT. That said, why am I doing this a few days before the Presidential election? Because I wanted to think out loud. I have been having another case of Deja vu over the last 2 weeks both in the mainstream media outlets as well as in the financial markets.  I keep hearing replays from many media, entertainers and actors, and financial outlets of the late 80’s REM song, “it’s the end of the world”.

I repeat, this is meant as a thought piece for you and your money regardless of who you vote for next week or who wins. And I nor OHFG are endorsing a candidate for next week.

There has been a near constant chorus across financial news outlets over the last 2-3 weeks about the ongoing moves in the markets both stocks and bonds being part of the “Trump trade”. That is financial markets moving based on Donald Trump winning the Presidency as he did in 2016 as a long shot against Hilary Clinton.  Folks, up until 2 weeks ago, I thought that had very long odds.  That is until I saw this table compiled by a number of polling sources.  Here’s the table, it breaks down the 7 states that are thought to be “swing states”, that is close races between the current VP and former President that ultimately will tilt the electoral vote and the Presidential outcome.

What shocked me was that of the 6 major Issues: the economy, immigration, abortion, democracy, healthcare, and senior services, over 50-53% of voters in these states ranked the economy and immigration as the 2 most important issues. In both of those areas, the former President have a large polling advantage. Not surprising to me was the Vice President had a commanding advantage with those who ranked social issues higher and social service spending as well.

I guess this chart really shouldn’t have surprised me as much as it it did because I do believe in what James Carville said in 1992 under President Clinton, “it’s the economy stupid”.  And while the US economy is growing at a nice steady pace, the last 3+ years did usher into the economic forefront, a 18 month period of rapid inflation peaking at over 9% only 2 years ago.  That coupled with what we have discussed in numerous videos over the last year, a labor market that is nowhere near as strong as the current administration is touting, based on record number of workers working 2^nd and 3^rd jobs to meet expenses, the Vice President is behind the 8 ball on this one.

So, since this is a thought piece, and my job is managing money not debating political outcomes, I’m going to jump to what might happen if DJT is re-elected next week.  The signs I am seeing in the financial tea leaves are surprising to even myself.

First off, on the economy, there is fearmongering going on that inflation will spike massively due to DJT’s agenda. An agenda that supposedly would bring on higher deficits than the VP current agenda.  Investors are highly doubtful.  As we have discussed for my 6 years at OHFG, both parties, Republicans and Democrats have been equally as horrific at overspending since the Bush administration took office in 2000.  They are both politicians and if we have learned anything about politicians the last 40 years is that they will spend money, money we don’t have as a country, and all we are doing is arguing over where that is spent, by way of tax cuts that inflate the deficit, more spending on unquantifiable ROIC government projects, or expanded social welfare and entitlement programs that never get cut back.

Would you be shocked to hear that yields leading up to the November 2016 election rose by the near EXACT same amount off their summer lows as they have in 2024?  About 42 basis points.  Is anyone in the world, ex a leveraged quant trader changing their investment outlook based on 42 basis point of higher yield?  After Trump was elected in 2016, yes yields went higher in the 4^th quarter.  They usually do as our economy is very seasonal.  Even with the nod to massive looming tax cuts, interest rates rose by? 60 basis points, that’s it.  In the span of 6 months yields rose 100bps.  It wasn’t the end of the world or financial markets.   Here’s the chart of the 10-year yield then and now.

The rise in yields in 2021-22 was due to the massive, government induced Covid response money supply explosion.

Looking back to 2016 post Trump winning the election, what happened to inflation?  Yes it rose, modestly, just as it has started to do again, did it lead to financial collapse in 2017?  No.

One of the things that was difficult about the Trump Presidency was the the second 2 years of it.  The short-term volatility he induced by his afternoon tweets, usually on a Thursday after European markets were closed and the only markets in the world that were open were ours in the US.  Funny thing is I went back and studied both the actual, realized volatility markets in 2016 leading up to the election as well as the implied forward volatility markets that are traded, and compared them to 2024.  Guess what?

They are nearly identical. Almost to the day.  My brain remembers massive volatility into the election and the night of the election, but remember investors, the overnight futures markets are the wild west of investing. No guardrails for options trading overnight.  So, I went back and looked at the real data and guess what I found the actual cash SP500 index was down only about -4% during the 2 weeks preceding the election.  Theres nothing abnormal about that kind of pullback at this time of the year.

But Chris volatility was massive, nope, I check and spot vix peaked at 21.48 the day after the election, forward vol for December actually closed at under 15 the day after the election. Over the next 6 months post-election, the S&P500 returned over 15% as volatility collapsed and investors moved on to focusing on forward earnings and economy that was growing for the 1h2017.  Inflation was moderate, tariff rhetoric was ramping up but so to was the talk of lower taxes that benefit forward earnings.  Back then, even with the increasing belligerent talk against China, Chinese equities were one of the best performing groups in 2017 off depressed valuation levels.

Investors, I don’t know who will win the election next week, but when I step back and rationally think about a second term with DJT and what it might mean for investors, the phrase “it’s different this time” is one I have a hard time backing.  “Why”?  because like it or not, It’s many of the same people, managing the same money, doing the same things over and over again in the market, so many times we get the same outcomes in the financial markets.  Humans are creatures of habits, both good and bad, but the biggest financial surprise I can think of for 2025 would be? A post 2016 repeat of 2017 and realized volatility collapsing, not spiking over the year.  That would be a spot vix back below 10 during 2h2025 when historically this math calc stops at 12.  Investors, the math for the S&P500 at a sub 10 vix in the 2h25 would be an S&P500 of 7000 near year end.  Am I predicting that here now? No, I am just thinking out loud. I am bouncing ideas around. But I will say it’s much of the same methodology that got me to 5800-year end 2024 optimistic outlook and 6000 into January 2025 way back in late October 2023 when others were screaming 1987 crashes, or worse yet Elliot wave, splatter paint charting, Generational top is coming, below 4160 line in the sand, time to mange risk almost 40% lower from our current levels.

Investors, it’s been a secular bull market since around 2011 and a cyclical bull market since October 2022 pivot higher after the 1h2022 bear market.  And it’s still a bull market, until it proves itself it isn’t, regardless of who wins next week, whether you like their fiscal or social policies, or whether or not your voted from him or her.  So investors, if you start hearing them playing that REM hit, https://www.youtube.com/watch?v=Z0GFRcFm-aY, It’s the end of the world as we know it”, remember the tag line that came late?  And I feel fine.

So, investors, I’ll leave you with a little data on past historical elections for returns under a GOP, and DNC Presidents when they one the election and swept Congress and didn’t since 1900.  Regardless of the outcome, historically the outcomes were more favorable than not because at the end of the day, your investment dollars like to quote James Carville from 1992, “It’s the economy Stupid”.

Until next week, when we hopefully will have an undisputed President elect, God bless you, your family, and God Bless America.

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