How Will Markets React to a Potential Trump Presidency?

Market Calm Despite Political Uncertainty: Investors Anticipate Potential Trump Presidency with Confidence

Editorial Team (ET)May 9, 2025

Investors are keeping calm and carrying on as thoughts of a second Donald Trump presidency begin to percolate amid President Joe Biden's prime-time debate debacle. The market has seemingly come to terms with the possibility of Trump reclaiming the White House, showing minimal volatility in response to the latest political developments.

Investor Sentiment Post-Debate

The one takeaway from the debate last week was the market has sort of made its peace with Donald Trump being the next president, according to Ben Laidler, Bradesco head of equity strategy. On the 'Opening Bid' podcast, Laidler noted, "We saw markets sort of edge up a little bit and we didn't see that volatility." This sentiment reflects a growing investor confidence in a Trump administration's business-friendly policies.

Trump and Biden left debate-watchers stunned, with Trump spewing falsehoods and Biden appearing frail and out of touch. Despite the spectacle, investors seem unshaken, perhaps reminiscing about the robust market performance during Trump's first term.

Market Performance Analysis

Since the debate aired the evening of June 27, the S&P 500, Nasdaq Composite, and Dow Jones Industrial Average are only down fractionally. Notably, shares of market leader Apple (AAPL) have gained about 1.6%, while Amazon (AMZN) has seen its stock trade sideways. This stability suggests that investors are not overly concerned about the political landscape disrupting market dynamics in the short term.

Revisiting 2016 "Trump Trades"

Morgan Stanley strategist Mike Wilson observed an uptick in client interest to rotate into 2016 "Trump Trades" in the cyclical and small-cap space the morning after the debate. "Market expectations for fiscal expansion, reflation, and less regulation under a Trump presidency drove these initial moves, in our view," Wilson said in a client note. This shift indicates a strategic positioning by investors anticipating a repeat of the economic conditions that benefited these sectors during Trump's first term.

AI Sector Response

One area to watch to see if Laidler's thesis is fully correct is the sizzling AI trade. Shares of AI bellwether Nvidia (NVDA) are off by 3% in the wake of the debate. This dip might signal investor caution in the face of potential regulatory changes, despite the overall market's calm demeanor.

Historical Context: Trump's First Presidency

Investors generally enjoyed solid returns during the Trump presidency, despite various surprise events such as the COVID-19 pandemic and the storming of the Capitol. The Dow Jones Industrial Average returned 56% during Trump's presidency, according to data crunched by LPL Financial. The Dow notched 126 new highs, and the S&P 500 climbed more than 50%. Apple's stock surged in excess of 350% during the Trump presidency, part of a broad rally in tech stocks. Pros say the gains were fueled primarily by the Trump tax cuts boosting corporate profits and the wealth effect from stocks spurring consumer spending.

Challenges and Opportunities in a Potential Trump Presidency

However, those expecting sunshine and rainbows in a potential Trump presidency may want to dial back expectations, at least initially. Wilson points out that the backdrop for stocks is much different than in 2016. "We would argue that the cycle is more mature today than it was in 2016, as evidenced (among other variables) by the two-and-a-half-year decline in the Conference Board Leading Economic Indicator series," Wilson said.

Inflation and Fiscal Sustainability

The market welcomed a reflationary playbook in 2016. Inflation was not a headwind to consumers in the way it is now, and the US economy was recovering from a manufacturing/commodity recession, the recovery of which was aided by the prospects of a pro-fiscal/reflationary policy regime. Today, inflation is a notable headwind to consumers, and fiscal sustainability dynamics are top of mind for the bond market. These differences pose significant challenges for replicating the market performance of Trump's first term.

Consumer Sentiment and Spending

Ford CEO Jim Farley says consumers may get a little nervous around the presidential election but doesn't believe it will materially stunt demand for autos. Catch Farley's insights below in an 'Opening Bid' episode. This perspective highlights the resilience of consumer sentiment despite political uncertainties, though it remains to be seen how this will play out across other sectors.

Conclusion

In conclusion, investors appear to have found peace with the idea of another Trump presidency, drawing confidence from the pro-business stance and market performance seen during his first term. However, the current economic landscape, marked by inflation and fiscal concerns, presents new challenges that may temper expectations. As the political climate continues to evolve, investors will need to stay agile, adapting their strategies to navigate the complexities of a potential Trump administration.

Donald Trump

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