Key takeaways
Investors responded positively to Trump’s presidential election win in November, with the S&P 500 gaining 2.5% the day after polls closed.
Capital markets exhibited some skittishness, however, as the President’s long-discussed tariff plans took shape recently.
Investors are still waiting to judge the potential economic and market impact of other key Trump proposals.
In the first two weeks since Trump’s inauguration in January, the market is essentially flat. The S&P 500 opened just under 6,000 on the day Trump took office, and two weeks later, was again just under 6,000.1
Stocks demonstrated initial enthusiasm after Trump’s election, with the S&P 500 gaining 2.5% on the day following the November vote. Equity markets eventually climbed even higher, but markets then encountered headwinds in mid-December when the Federal Reserve (Fed) announced plans to slow interest rate cuts in 2025.2 Investors eventually put aside concerns surrounding monetary policy, and the S&P 500 reached new highs on January 23. Another external event, the announcement of a China-based artificial intelligence (AI) platform, DeepSeek, sent ripples through the technology sector, leading to a relatively short-lived market selloff.
“It’s very clear to the market that some form of tariffs will be an active part of the Trump administration’s agenda in the near term,” says Rob Haworth, senior investment strategy director with U.S. Bank Asset Management.
Just as stocks began to rebound from news of DeepSeek, Trump announced on January 31 plans for an almost immediate implementation of strict tariffs on three major trading partners. This included 25% tariffs on most Canadian and Mexican imports and an additional 10% in tariffs on Chinese goods. It caused a late-day market drop on the day of the announcement, and a further decline when markets opened again on Monday, February 3. Later in the day, the White House announced that Mexico’s tariffs would be delayed for 30 days, which helped markets recover some of the ground lost earlier in the day. After markets closed, it was announced that tariffs applied to Canada would also be delayed 30 days. However, the expanded China tariff took effect February 4. China retaliated, applying its own tariffs on some specific goods and resources, accompanied by restrictions on certain mineral exports to the U.S.
Prior to the election, says Tom Hainlin, senior investment strategist for U.S. Bank Asset Management, “Investors worried about what would happen if inflation reaccelerated, what if the Fed had to raise interest rates, what if the election outcome is uncertain. We overcame all these hurdles.” Along with a narrow but clear Trump victory in November accompanied by the Republican sweep of the House and Senate, Hainlin notes that consumer spending remains solid and corporate earnings are positive, all factors that contributed to positive, post-election market sentiment.
While many underlying economic fundamental factors are pointing in the right direction, Trump administration policies are a wild card. “There’s a lot of uncertainty about what government actions will have an impact on markets going forward,” says Rob Haworth, senior investment strategy director with U.S. Bank Asset Management. He notes that the tariff plans, if implemented as laid out by Trump in early February, would likely have serious economic repercussions. “It’s very clear to the market that some form of tariffs will be an active part of the Trump administration’s agenda in the near term,” says Haworth.
Although President Trump has issued many executive orders, other action will require Congressional approval. Trump has the benefit of his own Republican party controlling both the House and Senate, but the advantages are narrow. Republicans hold a 53-47 Senate advantage. In the House, the split is even closer, currently with 218 Republicans to 215 Democrats.3 Two seats held by Republicans are currently open, with another likely to open, which will further narrow the Republican majority.
Along with Trump’s tariff proposals, two other key issues are on the table, likely to have an economic impact:
President Trump has emphasized reducing the number of undocumented immigrants currently residing in the U.S. This includes plans to deport millions of immigrants. “An economic consideration is that many of these immigrants, regardless of legal status, are part of the labor market,” says Haworth. He notes that losing this portion of the workforce could have inflationary implications, though the impact might be delayed by a year or more. Foreign-born workers make up nearly 20% of the U.S. labor force.4
While action on immigration, much of which can be enacted by Presidential executive order without Congressional approval, is expected in the administration’s early weeks.
In his first term, President Trump’s primary domestic achievement was the 2017 passage of the Tax Cut and Jobs Act (TCJA). It implemented significant income and estate tax cuts along with other tax law changes. However, the TCJA sunsets at the end of 2025. During the campaign, Trump emphasized his desire to extend the tax cut package. “This is more of a 2026 issue since the current tax rates extend through 2025,” says Haworth. “Therefore, it may be later in 2025 before Congressional action occurs.” Narrow Republican majorities in the House and Senate may also complicate the legislative process. Congressional leaders have discussed trying to pass legislation that addresses multiple issues, including tax policy, in one or two bills. However, much work appears left to be done.
One key issue is the federal budgetary impact. According to a non-partisan organization’s recent estimate, extending the individual income and estate tax provisions from the 2017 Act would add nearly $4 trillion plus interest costs to deficits through fiscal year 2035.5 Congress may look for places to cut spending to offset some of the TCJA extension’s costs. “Offsets will require negotiation,” says Hainlin. “Nevertheless, directionally, it appears personal and corporate income tax rates are likely headed lower, not higher.”
A major consideration is how Trump administration policies may impact inflation and how soon interest rates, which remained elevated, might come down. Tariff impacts, in particular, are a concern. “The magnitude of tariffs as proposed will be immediately inflationary for certain sets of goods,” says Haworth. “Previous tariff increases weren’t as dramatic and had little inflationary impact, but adding tariffs at the scale being discussed would have inflation implications.”
An immigration crackdown could have a mixed impact. If it meaningfully reduces the workforce, it could push labor costs higher. At the same time, it could have a favorable impact on the housing market. “Lower immigration could relieve some price pressures on rents,” says Hainlin. However, Hainlin also points out that the interest rate environment also has a significant impact on the availability of single-family homes. Rates remain elevated, with the 10-year U.S. Treasury note hovering near the 4.5% level,6 and average 30-year mortgage rates close to 7%.7
Early market enthusiasm for Trump’s victory may in part reflect the fact that markets generally prospered from 2017 to 2021, during Trump’s first term.
One immediate concern facing Congress and the administration is dealing with the federal budget. The U.S. Department of the Treasury is also bumping up against a debt ceiling limit (set by Congress) that affects its ability to issue Treasury debt to fund government operations. Congress will need to address that issue, as well as the 2025 fiscal year budget, which has yet to be approved. Congress must act by March 14, 2025, to either pass a temporary funding measure or approve a final budget.
“At this point, markets have a difficult time pricing to policy, so the focus is still on solid earnings, steady consumer spending and the economy still achieving a soft landing,” says Haworth. “At 2025’s outset, that leaves us with an equity market on solid footing.”
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Between the end of trading on election day, November 5, 2024, through February 3, 2025, the S&P 500 gained 3.7 %, although it experienced periods of significant volatility within that timeframe.1 While some of that may be attributable to investor reaction to election results, other factors have also come into play. The Federal Reserve was in the process of reducing short-term interest rates, generally considered a favorable sign for stocks. In addition, the U.S. economy continued to show persistent strength with the labor market holding up well, helping consumers maintain elevated spending levels. This contributed to continued corporate profit growth, a key stock market driver.
Investors tend to assess a variety of factors. Federal government policy, often driven in large part by the President, is only one of those factors. Another major story boosting markets is that the U.S. economy in 2024 grew at a 2.8% annualized rate, considered a reasonable expansion pace in a high-interest rate environment.8 Consumer spending helped fuel economic growth, which in turn benefited corporations, that continue to experience solid profit growth.
As President Joe Biden’s term wraps up, the market’s performance is comparable to that generated by markets during President Donald Trump’s first term. Through Biden’s four-year term, which ended January 20, 2025, the S&P 500 gained 57.85%. In Trump’s first term, the S&P 500 gained nearly 68%. While that was impressive, since 1980, Trump’s first-term record ranks as only the fifth-best market return during a four-year presidential term. The top-performing markets over four-year presidential terms during that span were: (1) Bill Clinton, 1993-1997, + 77.68%; (2) Clinton again, 1997-2001, +72.97%; (3) Barack Obama, 2009-2013, 74.80%; and (4) Ronald Reagan, 1985-1989, +68.05%.
U.S. presidential elections naturally affect policy — but do they affect the market? Here’s a look at the impact election cycles have historically had on capital markets and what to watch for in 2024.
Having reached new record highs more than 50 times in 2024, investors wonder if the S&P 500 is due for a pullback in 2025.
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