Post-Election Market Reactions

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Gratefully, the election passed without provocations, incidents, or major delays. Markets do not like delays, since they cause uncertainty. The complete outcome isn’t certain yet, although there appears to be a high probability all three branches of government will be controlled by the Republican Party, and policy changes are likely. Initial reactions from the markets have been favorable towards stocks and unfavorable towards bonds. Will these reactions endure? Actual legislated financial policies can impact the fortunes of business and government spending and taxation, but the Federal Reserve (“the Fed”) still retains the most influential seat at U.S. and global economic tables, as it were.

It is safe to say market buyers of stocks on Wednesday were assuming lower regulation, and likely more merger activity, lower tax rates, and economic expansion. Bond market sellers were likely assuming higher tariffs and inflation, although both were already in recent motion.  The Fed continues to attempt to engineer a “soft landing” for the U.S. economy by lowering inflation and not “crashing” the economy, which it appears they have done, or at least it happened as they were raising interest rates, but they are now pivoting to the interest rate reduction mode. This should help all consumers on the margins, but continued economic growth reflects the strength of the underlying economy.

We are reminded to stay focused on long-term investing. Will the new expected government policies bear fruit for economic growth? Tariffs will not, and depending on their nature and extent, they could offset a large portion of the economic growth policies. Time will tell. We are already invested in the stock market with a long-term strategy and will adapt where necessary.

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