Since the US presidential election, where Donald Trump was the surprising winner, the S&P 500 has continued to climb to record highs. The majority of people believed in a market decline should Trump be elected, which it did briefly before rallying exactly as we predicted in our pre-election article here.
There are three main factors for the market rise, the first of which is that Trump has indicated his plans to increase public spending by investing $1 trillion in infrastructure, which would spur economic growth. The second factor is the promised tax cuts, which would mean firms have more to invest, enabling them to grow faster. The final reason is the planned deregulation of the banking and healthcare sectors, which explains why many bank and healthcare stocks have grown quickly.
However, after the collapse of the Republican’s healthcare bill last week, investors took a negative view of Trump’s ability to push his other pro-growth policies. As a result, the dollar hit its lowest level since immediately after the presidential election and there is less belief that the Fed will have three rate rises this year. Market volatility reached 2017 highs and global stocks retreated, causing investors to look to bonds and gold as alternative investments. The S&P 500 suffered its worst one-day fall since October and the Dow Jones suffered an 8-day losing streak, its longest since 2011.
Although it seems that investors’ worries have now eased as the S&P 500 rose 0.73% on Tuesday and the Dow Jones rose by a similar margin, ending its losing streak. Gold prices fell and the 10-year Treasury yield rose 4.3 basis points, suggesting investors are moving away from these havens.
To conclude, it seems as though the market decline due to Trump’s failed healthcare reforms is over and investors once again have confidence in Trump’s pro-growth policies, especially his impending tax reforms. Investors will also be looking towards what the Fed will likely do to interest rates at their May meeting.