The stock market has surged to new heights following the re-election of Donald Trump. On Wednesday, the Dow Jones logged its best day in two years, and the S&P 500 and the Nasdaq also reached new records. John Bai, a professor of finance at Northeastern University, says the post-election exuberance is partly investors’ reaction to a swift election result and partly a response to Trump’s proposed economic policies.
“The number one rule in the stock market is that it doesn’t like uncertainty,” Bai says. “But it does like the removal of uncertainty.”
In 2016, Trump’s unexpected victory caused initial volatility, but the markets quickly rebounded. The 2024 election was called swiftly, which provided reassurance to the markets.
Trump’s policies, expected to be similar to his previous term, are anticipated to be pro-growth with cuts to corporate tax rates and encouragement of a larger market-driven economy. This perception helped buoy investor confidence. Bai points out that the market’s positive reaction also stems from Trump’s decisive victory, which reduced the likelihood of prolonged legal challenges and other delays.
Stock market hits new records
However, challenges remain. Trump’s tariff plans could raise costs for households, much like during his first term.
Bai notes that Trump’s first term included a trade war with China, a global pandemic, and a stock market characterized by wild swings and overreactions. For new investors, Bai suggests that now is as good a time as any to enter the stock market. “If you are an inexperienced investor and just want to get in the game, I think the best bet is to go with the overall market indices: the S&P 500 or Nasdaq,” he advises.
While he refrains from advising on specific stocks, he mentions that exchange-traded funds (ETFs) could also be a good addition to a portfolio. “If anything, the United States is still the leading technological engine, and if policies shift back to the U.S., consumers may reap the benefits,” Bai says. “Even from a company’s perspective, just the corporate tax reduction plan and deregulation alone are going to result in corporate profits going up over the next four years.
This is the anticipation.”
