A “Trump Bump” Instead of a “Trump Slump” Makes Chumps Out of Stock Market Experts

A “Trump Bump” Instead of a “Trump Slump” Makes Chumps Out of Stock Market Experts

December 10, 2016

It wasn’t just political experts who looked bad after Donald Trump’s recent victory. Stock market forecasters also looked bad. Most predicted that if Trump won, it would be bad for stock prices.


Before the election, analysts were comparing stock market fluctuations to fluctuations in the relative popularity of Trump and Clinton. It appeared to them that when Trump was doing better, the stock markets declined. When he was doing worse, markets rose. The conclusion from this - the markets would do better if Clinton were elected. Studies were done to prove this, as you can read here.

Immediately after the election, declines were still being forecasted. A CBS News Moneywatch article released at 5 AM on November 9, hours after the election was called but before US markets opened, predicted a 7% decline because of Trump’s victory. According to the author, “it’ll likely resemble the fallout from this past summer’s Brexit [stock market decline] all over again. Only bigger. And it’ll likely continue.”

Well, the predicted declines didn’t happen. US stock market indexes rose on the day after the election and have continued to increase since. As illustrated in the chart below, S&P 500 Index funds increased 5.8% in a month, an index of small and mid-cap US stocks was up 11.8%, bonds sharply declined and interest rates increased!

So why are stocks up and bonds down? Well, many of the same experts that were wrong about the result of a Trump victory are now explaining why the market is up.

Frequently mentioned reasons include:

  • The expectation that the Trump administration and the Republican Congressional majorities will:
    • Reduce corporate tax rates, increasing corporate profits. Higher profits justify higher stock prices.
    • Increase government spending to pump up the economy.
    • Reduce government oversight of corporate actions, which would probably increase profits.
  • The US economy is doing fairly well. The New York Times pointed out that:
    • The economy has added private sector jobs for 80 straight months.
    • The November unemployment rate was the lowest since August 2007.
    • Wage growth is running ahead of inflation
    • Consumer confidence is at the highest level in a decade.

Or maybe the recent increases were just a random event. Maybe the same increases would have occurred if Hillary Clinton won. Maybe markets increased because everyone was thrilled the election was over.

Notice in this chart that the stock markets began moving up before the election.

Forecasting hasn’t been reliable in predicting short-term stock market movements. In most cases, short-term changes are random events.

Despite unreliable forecast in the past, there is one forecast that will be reliable: continued stock market forecasting by experts, leading investors and talking heads. You should ignore short-term changes and concentrate on your long-term goals and long-term market trends.

Please note the following:
This is for educational purposes only. To learn more about the topics mentioned and if they are suitable for you, consult an appropriate professional. Tax laws can change at any time.

Any information provided in this presentation has been prepared from sources believed to be reliable, but is not guaranteed and is not a complete summary or statement of all available data necessary for making an investment decision. Any information provided is for information purposes only and does not constitute a recommendation.

Keep in mind that:

  • Past performance is no guarantee of future performance.
  • Investments involve the risk of loss of principal and earnings.
  • ETFs, mutual funds, money market funds, etc. are not guaranteed by the US Government, the FDIC, a bank or anyone else.
  • “Average annual return” evens out variations in the actual year-to-year returns.
  • ETFs, mutual funds and individual stocks and bonds fluctuate in value and there will always be times when they lose value.
  • None of the information provided is necessarily relevant to anyone’s personal situation. Circumstances differ among individuals and they should not assume that these generalizations or information apply to them.
  • Investments mentioned may not be suitable for all investors.