The U.S. stock market responded to Tuesday’s election with big gains. International stocks fell, as did bonds. What does this mean, if anything, about what we can expect for the next four years?

We looked at how markets behaved following 2020’s election. Keep in mind, our economy is complex and markets react to a wide variety of inputs. Elections and government leadership are just part of the puzzle.

The two charts below show the initial reactions from 2020, as well as the returns for the next four years, through election day 2024.

• Green bars show returns on the day after the 2020 election – 11/04/2020.

• Brown bars show returns from the day after the 2024 election – 11/06/2024.

• Orange bars show annualized returns from the day following the 2020 election through election day 2024, or the four years between elections.

U.S. Sectors

• Health care stocks had the biggest move up after President Biden won in 2020, bouncing 4.4%. And yet, health care was one of the worst performing sectors during the last four years, only outperforming consumer discretionary, real estate, and consumer staples stocks.

• The best performing sector from election day 2020 through Tuesday may surprise some people. Energy stocks had the biggest gains during the past four years, returning 38% per year. The investor reaction following Biden’s win in 2020 – up just 0.2% - was basically blah.

• Financial stocks were the biggest winners yesterday, up 6.2%, likely on the hopes of less regulation under President Trump. Real estate, consumer staples, and utilities – three sectors often associated with high dividend yields – all struggled, losing between 1% and 2.6%.

Asset Classes

Let’s look at broader groups now.

• Growth stocks returned 4.2% on the day after Biden’s 2020 win and had a strong four years. Small cap stocks were essentially flat, followed by four years of underwhelming returns. It seems safe to say investors got these calls right.

• Value stocks fell, albeit slightly, after the 2020 election. And they still returned over 14% per year between election days. Perhaps initial fears were a little over blown.

• After Trump’s 2024 win, expectations for small cap stocks and value stocks perked up. Both had strong returns the day after the election, up 5.8% and 3.0%, respectively. Bonds and foreign stocks struggled, primarily over fears of higher government spending and interest rates, as well as potential increased tariffs and a stronger U.S. dollar.

• Cryptocurrency (not pictured) also had a very strong reaction to Trump’s victory and is worth mentioning. Bitcoin reached an all-time high of $76,500 before pulling back just a bit.

Growth Stocks are represented by the Russell 3000 Growth Index. Value Stocks are represented by the Russell 3000 Value Index. Mega Cap Stocks are represented by the Russell Top 200 Index. Small Cap Stocks are represented by the Russell 2000 Index. Global Stocks are represented by the MSCI All-Country World Index (ACWI). Foreign ex-USA stocks are represented by the MSCI ACWI ex-USA Index. Emerging Markets stocks are represented by the MSCI Emerging Markets Index. 10-year U.S. Treasuries are represented by the Bloomberg US Treasury Bellwethers 10-year Index. Corporate bonds are represented by the Bloomberg US Corporate Bond Index. Commodities are represented by the Bloomberg Commodity Index. 60/40 is represented by the Vanguard Balanced Index Fund Admiral Shares.

Summary

So , are investors on the right track? It seems logical, based on the information we have today. A Trump Administration is expected to bring reduced regulation, lower corporate taxes, higher interest rates, and increased tariffs. But only time will tell. A big uncertainty has been removed – who will win the election. Polls leading up to the election were tight, leading some to forecast a long, drawn-out process to determine the winner. And the market can be more volatile when outcomes are uncertain.

We will undoubtedly get some curve balls, things that seem unlikely or even downright absurd today, over the next four years. Reiterating a comment from above, our economy and markets are complex. Government leadership is just one component. The unexpected will influence certain sectors or parts of the world in ways that would be nearly impossible to predict today. We will continue to monitor closely, and we continue to believe a diversified approach makes sense for many who are interested in growing and protecting their wealth.

If you have questions about how the election results may impact your plan or portfolio, please don’t hesitate to schedule time with us to discuss.

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