The stock market has surged to record highs after Donald Trump won a second term as President of the United States. The Dow Jones had its best day in two years, and the S&P 500 and Nasdaq also reached new heights. John Bai, a finance professor at Northeastern University, says there are two main reasons for the post-election excitement: the quick end to the election and Trump’s plans for the economy.
“The number one rule in the stock market is that it doesn’t like uncertainty,” Bai says. “But it does like the end of uncertainty.” This is similar to what happened in 2016, when the market first fell but then quickly went up once Trump’s win became clear. In 2016, the Dow Jones Futures dropped by over 700 points as Trump’s victory started to look likely, which was not what many people expected.
But the market quickly recovered once the results were certain. The clear and relatively fast outcome of the 2024 election also boosted investor confidence.
Stocks surge after Trump victory
Bai explains that investors are reacting to the idea that Trump will continue policies that help the economy grow, like lowering corporate taxes and letting the market drive the economy with less government involvement. “Once a winner is declared, the stock market starts to analyze and digest the policies that come with the winning president,” Bai says. The expected return of Elon Musk to a government role focused on reducing waste has also fueled optimism.
However, there is some worry about potential negative effects, such as higher costs for households due to tariff plans, like those seen during Trump’s first term. Looking back at Trump’s first term, Bai notes major events like the trade war with China and a stock market with “wild swings and overreaction.” It’s still unclear what the long-term impact of Trump’s yet-to-be-announced policies will be. For new investors, Bai suggests that now is as good a time as any to enter the stock market.
He advises beginners to look at overall market indices such as the S&P 500 and Nasdaq, stressing the potential benefits of a diverse portfolio through exchange-traded funds (ETFs). “If anything, the United States is still the leading technological engine,” Bai says, pointing out the expected benefits of lower corporate taxes and less regulation on corporate profits over the next four years.
