One of the big takeaways from this election is that American citizens voted in large numbers across the country. The election energized and engaged the electorate. They cared about the issues and their future—and they showed up to make sure their voices were heard. That is a good thing. Also, the voting process and the counting of those votes across the country went smoothly. That is also a good thing.
One side is celebrating, and the other side is beginning the process of campaign post-mortems. But the reality is that the country will begin to move forward today, and investors will begin to think about what the results could mean for their portfolios.
It was a good night for the Republican Party. Former President Trump re-created and expanded his 2016 coalition to become only the second person to win non-consecutive presidential terms. He appears likely to win all seven swing states.
Republicans will also control the Senate. So far, they have flipped three seats, with six seats yet to be officially called. They will have the majority, although not a filibuster-proof majority, when all the races have been called.
The House remains too close to call. It appears to lean slightly toward the Republicans retaining control at this point. Either way, whichever party ends up with the majority will do so with a very slim margin.
We also don’t yet know who President-Elect Trump will tap for key positions in the administration. This information will begin to shed light on how the new administration will govern and what its priorities will be. But there is a long path from campaign promises to signed legislation. And a lot can change during that process.
Going forward, we will be paying attention to the outcome in House races. Historically, the market has liked divided government. But over time, it tends to go up no matter what the power-sharing arrangement is. Looking at 70 years of data, it has done quite well when Republicans control all three branches (see chart below).
Sources: Truist IAG, Strategas
Markets don’t like uncertainty. Polls showed this election was a toss-up. This morning, investors have certainty. Equity markets are rallying across the board with major indices up at least 2 percent. On some level, investors have already seen this movie. President-Elect Trump is seen as advocating for pro-growth policies and less regulation. In bond markets, yields on the 10-year U.S. Treasury have sold off and are now back at levels between 4.4 percent and 4.5 percent. Given the move in equities, this reaction is somewhat expected in fixed income markets. Policy decisions that are supportive of the U.S. economy are likely to lead to higher interest rates.
That said, volatility is not unexpected as campaign rhetoric gives way to the actual job of governing. Who is tapped to fill cabinet positions and how the new administration begins to discuss its policy priorities will cause short-term reactions in markets. Volatility also creates opportunities for those who are willing to look through the short-term noise.
All that said, re-positioning portfolios because of an election is a hard thing to do. Timing markets is also hard, if not impossible. At the end of the day, markets are driven by fundamentals. As the dust settles on the election, it is important to remember that the economy is on solid footing, with continued growth expected. A growing economy is good news for corporate America. Expectations continue to be for double-digit earnings growth in 2025 for the S&P 500. A growing economy and growing corporate earnings are a positive backdrop for investors and should be supportive for markets over the long term. With the election moving into the rearview mirror, we can all take a moment to breathe and keep on keeping on.