Putting the Post-Election Rally in Perspective
BY JAMES H. DRYDEN | December 2024
With November’s presidential election thankfully behind us, the market has made its voice heard. The S&P 500 closed higher for the ninth month in the past eleven1, marking a significant post-election rally. Whether this was driven by optimism surrounding President-elect Trump’s anticipated policies, the GOP’s congressional sweep with prospects for corporate tax reform, or simply the resolution of election-related uncertainty, the result is clear: the S&P 500 rose 5.73%1 in November and is now on track to achieve consecutive annual gains exceeding 20% for the first time since the late 1990s1.
As always, we aim to steer clear of political partisanship. However, the election’s outcome has generated considerable market speculation, with analysts already publishing roadmaps for navigating the new political landscape. We’re skeptical of course because we have no idea what policies will ultimately be enacted nor their impact. The headlines are all about tariffs, taxes, and deportations yet those are simply broad themes with little detail. Moreover, Trump’s cabinet is not yet in place…nor has he issued a single executive order. Until concrete policies and their implications come into focus, we believe it is premature to make sweeping adjustments.
Two significant events following the election have already demonstrated the multifaceted nature of market dynamics – and why it is misguided to assume that the new administration's policies will unfold in a vacuum, unaffected by other forces. On November 14th, Federal Reserve Chair Jerome Powell suggested a more measured pace for interest rate reductions, triggering a sharp 2% selloff in the S&P 5002. Shortly after, geopolitical tensions escalated as Russia unveiled a new nuclear doctrine in response to events in Ukraine. These events underscore the complex interplay of factors influencing markets, beyond just election outcomes.
Beyond the here-and-now, the annual flurry of S&P 500 forecasts for 2025 has begun. While such predictions may generate headlines, the current uncertainty of significant policy shifts makes them, at best, only educated guesses. For now, we believe a disciplined approach is essential, avoiding major portfolio changes until there is greater clarity on the specifics and timing of proposed policies.
Despite the market’s recent strength and the seasonally favorable period ahead, some concerns persist. The S&P 500’s trailing Price-to-Earnings ratio has climbed above 26 – the fourth highest level in the past 125 years3 and suggestive of a market that is overextended. While stretched valuations may give some investors pause, history shows that markets have often continued to climb after periods of strong gains, particularly over short- to medium-term horizons.
Finally, we note a historical curiosity: it has been over 16 years since a presidential election resulted in unified control of both houses of Congress and the White House. For Republicans, this trifecta is even rarer, occurring only three times since the 1920s4. Perhaps contrary to what many are thinking, the first year after gaining control, the S&P 500 has struggled. While this is by no means a definitive indicator, it is a possibility that should be considered as we navigate the months ahead.
In conclusion, while the market’s momentum remains positive, we recommend staying the course until more policy clarity emerges. Maintaining a balanced perspective and a disciplined investment approach will be critical as we move forward.
Onward.
1 FactSet Research
2 Birinyi Associates
3 Bank of America
4 Birinyi Associates
Wells Fargo Advisors Financial Network did not assist in the preparation of this report, and its accuracy and completeness are not guaranteed. The opinions expressed in this report are those of the author(s) and are not necessarily those of Wells Fargo Advisors Financial Network or its affiliates. The material has been prepared or is distributed solely for information purposes and is not a solicitation or an offer to buy any security or instrument or to participate in any trading strategy. Additional information is available upon request. The S&P 500 Index consists of 500 stocks chosen for market size, liquidity, and industry group representation. It is a market value weighted index with each stock's weight in the Index proportionate to its market value.
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Past performance is no guarantee of future results.