If you are like me, the end to this latest presidential cycle could not come soon enough. It is finally over, and we have a new President-Elect in Donald Trump to serve his second term. With the incoming Republican administration, what does it mean for your wealth-building and your financial wellbeing? Let’s find out.
When it comes to investing, understanding the historical performance of financial markets under different political administrations can provide valuable insights. Let's dive into how U.S. financial markets have historically performed under both Democratic and Republican presidents.
Trump 2.0 and Stock Market Performance
History says patient investors will be rewarded regardless of which political party controls the White House. Please look at the following graph to see the historical performance of the S&P 500 Index under the different presidential administrations from 1957 to 2024.
The bottom line is that the financial markets can perform well regardless of the political administration that is in office. Additionally, the promise for lower corporate taxes and less regulation should help earnings growth for businesses, which should help the financial markets continue to see positive growth. As long-term investors, it is best not to overreact based on an election outcome, but instead stick to your plan of consistent investing and stay focused on your financial goals.
Trump 2.0 and Inflation
Based on the campaign promises that were made and the results from President-Elect Trump’s first term, several factors might impact inflation or result in higher prices of goods and services in the economy. Factors that might impact inflation are: Tariffs on imports from other countries, especially from China, potential elimination of government tax credits for the purchase of EV vehicles, and immigration limits that might reduce the needed workers in some industries causing the cost of labor to go up and in turn result in higher prices.
The bottom line is to be aware that inflation might re-emerge in the U.S.
economy over the coming years. It is best to build your savings to help offset the cost of goods and services, if indeed inflation starts to tick up. By all means, don’t rely on credit to help offset the higher cost of things, but try to use the financial resources that you have saved.
Trump 2.0 and Interest Rates
The final economic impact to consider from the re-election of President-Elect Trump is the direction of interest rates. Several factors might cause interest rates to rise under the Republican led administration. Two factors are increasing budget deficits due to lower corporate and personal taxes, and a stronger U.S. economy that may result from government stimulus for various priorities. Keep in mind that higher interest rates have both a positive and negative impact on the economy. It is good for our protected investments like High Yield Savings, CDs, and Short-Term U.S. Treasuries; however, borrowing costs go up that impact credit used for purchasing automobiles, housing, and starting a business.
The bottom line is if you have big ticket item purchases that you are considering, you should keep an eye on the direction of interest rates to try to keep your overall costs down and within your budget.
Trump 2.0 Bonus Information
President-Elect Trump promises to make the United States the world’s crypto capital. As a result, the crypto markets might experience more positive growth under the Republican administration. If you have risky assets to invest, crypto funds might be something to consider. However please remember that Paycheck to Wealth does not recommend investing in digital assets like crypto due to the highly volatile nature of the investment. Please use caution and consult with an advisor before considering any digital asset investments.
Conclusion
While historical data suggests that U.S. financial markets and the economy have generally performed well regardless of the political administration, it's important to remember that many factors influence market performance. Investors should consider a wide range of variables, including economic policies, market conditions, and financial goals, when making investment decisions.
By understanding these trends, investors can gain a broader perspective on how political administrations may impact financial markets and your wealth-building goals.
Paycheck to Wealth is your trusted resource to help guide you through the challenges of understanding the financial markets during political turmoil. If you have any questions or need some assistance, please contact us and let’s discuss your future.
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