There are myths pertaining to the nature of the Dow Jones Industrial Average’s (DJIA) behavior in response to historical presidential elections.
The concrete severity with which they are proclaimed often lacks definitive cause and effect.
But what is certain is that the Dow indeed fluctuates before, during, and after a presidential election…
None more so than the 2016 election.
The stances the candidates take on economic conditions and what will be done to alter them is a proven catalyst for the Dow’s fluctuations, considering that the economy is typically the center focus of campaigns.
With Donald Trump’s promises of industrial revitalization, severe tax breaks, deregulation, etc., a plethora of believers and skeptics were at each other’s throats, arguing the outcomes of the markets after the election.
Many market strategists and analysts predicted that the markets would plummet with a Trump administration.
Dow futures had fallen 900 points at one point before the election, as investors expressed fear and concern about the inherent uncertainties bought about by a Trump presidency.
Remarkably, the exact opposite happened.
The Dow soared 257 points after the election, brushing up against lifetime highs and defying those who had predicted Trump’s election would lead to an inevitable crash and burn.
The index rose 1,200 points steadily in the four weeks after the election.
Some say the positive feedback in the markets is due in part to Trump’s upbeat victory speech.
Peter Kenny, an independent market strategist, admitted that the market had “greeted Trump with a far more positive footing than anticipated. He’s receiving a very warm welcome.”
It greeted Trump in a friendlier way than it had greeted Obama.
Wall Street bet that Trump will be good for business, and this has indeed helped to accelerate the U.S. economy.
As corporate earnings have drastically improved, valuations of stock shares remain unusually high as well.
The Dow overall is up 5% this year, with banks, tech, retailers, and industrial firms paving the way.
Dow CEOs have enjoyed a collective $402 million increase in the value of their stock holdings since Trump’s election, according to a study performed by Equilar.
That’s an 18.4% increase compared to the Dow’s overall gain of 11% during that period, according to CNN.
Most of these gains belong to Goldman Sachs and JPMorgan Chase.
Trump’s promises to deregulate the Dodd-Frank Act, which places regulation of the financial industry in the hands of the government, has sent big bank stocks skyrocketing.
CEO Lloyd Blankfein of Goldman Sachs has seen a 33.7% increase in ownership value, resulting in gains of $145.7 million.
CEO Jamie Dimon of JPMorgan experienced a 24.5% increase in ownership value, resulting in gains of $22.6 million.
Other top performers include Apple, Visa, Cisco, Nike, Home Depot, and Boeing, all experiencing similar increases.
However, it hasn’t been straight wins across the board for everyone.
Coca-Cola, Wal-Mart, and Johnson & Johnson experienced drops of 4.4%, 2.5%, and 1.2%, respectively, after Election Day.
These decreases are not significant enough to match those gains witnessed by their Dow counterparts.
The Dow soared 303 points to close above 21,000 for the first time ever on Wednesday, March 1 after President Trump addressed Congress for the first time.
Prior to this, many investors were concerned with the direction Trump was taking, especially considering a looming spike in interest rates in the very near future.
Afterwards, most were left with an optimistically “glass-half-full” feeling, having now obtained a general idea as to which way things were going.
Trump has stated that he intends to boost the economy with “massive” tax relief and will allocate $1 trillion towards revamping American infrastructure. All of this is responsible for Wall Street’s latest record-breaking streak since the election, says Reuters.
The March rate hike, announced on Wednesday by the Federal Reserve, will make it more expensive to borrow money, but it also reaffirms policymakers’ growing confidence in economic expansion after years of unenthusiastic growth.
“It’s not necessarily the rate increase that matters. It’s that they’re seeing things improving. If the Fed feels more confident, maybe we should too,” said Warren West, president of Greentree Brokerage Services.
The new milestone for the Dow comes barely a month after it hit 20,000 for the first time ever.
In 24 short trading days, this new record was achieved.
In total, the Dow has risen a staggering 2,700 points since Trump’s victory over Hillary Clinton this past November.
What makes this a truly historic event is that the market is continuing to hit new record highs during its consecutive winning streaks. This hasn’t happened since President Regan’s second term.
Although some investors are worried that another crash is possibly looming because these record highs are relatively similar to trends observed in 1987.
The Dow hit 12 consecutive records in January of 1987, increasing in just 13 straight days.
Then on October 19, it experienced one of the worst one-day drops ever seen. A 508-point plunge wiped out 23% of the index’s value.
Fortunately, it turned out to be just a mere blip in a bull market that did not come to an end until 2000.
Some are not optimistic that a recovery could be made if another drop occurs, yet some are seeing the potential for significant economic growth and expansion.
As of close today, the Dow is hovering just below its historical 21,000 mark, concluding its four-week winning streak of weekly gains.
But things are still looking good.
Until next time,
John Peterson
Pro Trader Today