This week’s Two Minute Tuesday features a panel of charts showing cumulative returns of various sectors, factors and asset classes from 31 days prior to Donald Trump’s Presidential election win in 2016 to one year thereafter, overlaid with the market action seen in the same timeframe thus far in 2024.
Understanding the market’s reaction to the change in government and estimating probabilities of expected policy change is critical to tactical and strategic portfolio positioning. Let’s dig into the data and try to gain some clarity on what’s going on now.
Equities
From October 5, 2024, through November 13, 2024, the S&P 500 Index followed the immediate Trump rally signature and then some, thus far outperforming its post-election rally in 2016. Note that broad market equities were far cheaper in 2016, trading just over 16 times the next year’s earnings. The anticipation of corporate tax cuts and the ”FAANG” (Meta (formerly known as Facebook), Amazon, Apple, Netflix and Alphabet (formerly known as Google)) context showing up on the investment menu for the first time in 2017 led to the lowest year ever in S&P 500 realized volatility. Today, that forward price-to-earnings multiple for the S&P 500 is 22 times next year’s expected earnings. The S&P 500’s concentration in higher quality growth companies should make up for some of that valuation premium, but not all of it. Equities are flying at a higher elevation today than they were in 2016.
Bonds
The Bloomberg US Aggregate Bond Index showed similar cumulative losses before and just after the 2016 election. One major difference, however, is that in 2016 all those losses came in the day following the election, while in 2024 the losses were discounted prior to election day.
The US 30-Year Treasury Rate (long bond) expanded its yield by as much as 25% of its pre-election level in the days following the 2016 election and remained elevated for the following year. Thus far in 2024, the move is more muted, with the long bond’s yield expanding less than 10% of its pre-election level. Note that Treasuries in 2016 were far more expensive, with the long bond yield just over half of today’s level.
Sectors: Financials, Health Care and Energy
Moving inside the US equities market, Financials have again outperformed in 2024 but they haven’t seen nearly the relative upside they showed in 2016. The level of rates and steepness of the yield curve tends to drive expected returns in banks’ net interest margins, so today’s more muted expression in the yield curve may have attenuated the move in Financials compared to 2016.
Health Care has underperformed into and following the 2024 election, just as we saw in 2016. The anti-establishment rhetoric and resulting “MAHA” (Make America Healthy Again) movement aren’t quite like the drug-price debates of 2016, but they may have the same effect on sentiment of pharmaceutical and biotechnology firms. Health Care underperformed for the entire year following the election in 2016.
Energy was an underperformer coming into the election in 2024 and hasn’t seen quite the relative outperformance it did in 2016 after the election. The energy abundance agenda of the Trump administration may translate to pressure on energy prices in the near-term and Energy firms may increase their appetite for investment if the industry is deregulated. Other than looking cheap relative to the rest of the US large capitalization equity universe, the medium-term outlook for Energy is less certain.
Factors: Value, Growth and Small-Cap
The movement into Value and Growth equities post-election in 2024 is showing the opposite pattern it did in 2016 from 31 days prior to election day through November 13, 2024. This is interesting as it demonstrates the market reaction is more nuanced than the simple style-based pattern that clearly emerged in 2016. The outperformance of small-cap firms thus far in 2024 is spot-on the pattern we saw in 2016. Portfolio breadth is being rewarded.
Geography
International equities are underperforming the S&P 500 more dramatically in 2024 compared to 2016, amounting to nearly double the underperformance for the period before and immediately following the election result. Unlike 2016, part of that move was discounted in the month leading up to election day. The underlying factor here is the Trump administration’s planned expansion of tariffs. It’s all negative right now, but as seen in 2016, the market may begin to look through the negativity as the restructuring of the global trade system takes place. A gradual and uneven implementation of tariffs on countries based on their willingness to cooperate with US objectives may create an excellent active management environment outside the US.
Gold & Bitcoin
Gold rallied into the 2024 election and has since fallen after the election, following a pattern identical to 2016. Bitcoin, on the other hand, is the undeniable star of the show. Having rallied over 10% versus a climbing US Dollar into election night in 2024, the cryptocurrency proceeded to rally an additional 32% through November 13, 2024. The Trump administration’s stance on deregulation has created a new rally in digital assets, as reducing regulatory pressure on the ecosystem could open the door for more rapid growth, investment and innovation in the industry. Trump has explicitly identified multiple pro-crypto policies, including building a government bitcoin stockpile and even using cryptocurrency to address the national debt.
Summary
It isn’t 2016, but there are many similarities. It’s a great time to engage clients about their portfolios and how changing policies may affect their holdings.
Important Disclosures & Definitions
Bloomberg US Aggregate Bond Index: a broad-based benchmark that measures the investment grade, US dollar-denominated, fixed-rate taxable bond market. The index includes Treasuries, government-related and corporate securities, fixed-rate agency MBS, ABS and CMBS (agency and non-agency).
Forward Price/Earnings (P/E) Ratio: a stock valuation metric that compares a company’s share price to its projected future earnings.
MSCI ACWI ex USA Index: captures large and mid-cap representation across 22 of 23 Developed Markets (DM) countries (excluding the US) and 24 Emerging Markets (EM) countries. With over 2,000 constituents, the index covers approximately 85% of the global equity opportunity set outside the US.
Realized Volatility: sometimes referred to as the historical volatility. While the implied volatility refers to the market's assessment of future volatility, the realized volatility measures what actually happened in the past.
Russell 1000 Index: an index of the largest 1000 US companies by market capitalization.
Russell 1000 Value Index: measures the performance of the large-cap value segment of the US equity universe. It includes those Russell 1000 companies with lower price-to-book ratios and lower expected growth values.
Russell 1000 Growth Index: measures the performance of the large-cap growth segment of the US equity universe. It includes those Russell 1000 companies with relatively higher price-to-book ratios, higher Institutional Brokers' Estimate System forecast medium term (2 year) growth and higher sales per share historical growth (5 years).
Russell 2000 Index: measures the performance of the small-cap segment of the US equity universe.
S&P 500 Energy Sector Index: a capitalization-weighted index designed to replicate performance of the Energy Sector of the S&P 500.
S&P 500 Financials Sector Index: a capitalization-weighted index designed to replicate the performance of the Financials sector of the S&P 500 Index.
S&P 500 Health Care Sector Index: a capitalization-weighted index designed to replicate performance of the Health Care Sector of the S&P 500.
S&P 500 Index: widely regarded as the best single gauge of large-cap US equities. The index includes 500 leading companies and covers approximately 80% of available market capitalization.
S&P GSCI Gold Index: a sub-index of the S&P GSCI, provides investors with a reliable and publicly available benchmark tracking The Commodity Exchange (COMEX) gold future.
US Treasury Yield: the yield that the US government pays investors that purchase a specific security.
Yield Curve: a graphical representation of the yields (y-axis) on debt instruments with different maturities (x-axis).
One may not invest directly in an index.
AAI000842 11/19/2025
