The 2024 presidential election has come and gone.
What was projected to be a very close race turned out to be less so. Republicans have re-taken the US Senate and appear poised to retain control of the House of Representatives as well. Whatever your political preference, it appears clear that there will be very different priorities for the US government starting in January 2025. We of course don’t know how any of this will play out over the next four years, but we will be here as always to help you navigate your life with money.
What is clear so far is that most parts of the US stock market have reacted favorably to President-elect Trump’s victory. Since election night, the S&P 500 has risen almost 4%, while the Dow and NASDAQ are up almost 5%. Parts of the market that Trump promoted heavily (often referred to as the “Trump trade”) have increased even more sharply, with Bitcoin, for example, up more than 25% since the election.
Other markets have not performed so well. International stocks have declined, with developed markets down about 1% and emerging markets off almost 2%. Sectors that Trump appears to oppose, like alternative energy (i.e., non-fossil fuels), have fallen even further, with an alternative energy index down 9%.
As for bonds, rates spiked, and prices declined, significantly the day after the election but have come back down and appear to have stabilized.
What does all of this mean for your portfolios, and should you be considering any major changes?
Our initial response is probably not, but with at least one caveat to be discussed below.
In general, we find ourselves in broad agreement with New York Times columnist Jeff Sommer. His 11/10/24 piece, “Even Now, Slow and Steady Works in the Stock Market,” outlines the uncertain future, given the vagueness, at least in terms of implementation if not rhetoric, of many of Trump’s policy proposals.
“Will the markets rise or fall further… Tax cuts are likely [our note: which could encourage growth as well as inflation], but Trump has also repeatedly vowed that he will impose tariffs on China and many other countries as well, measures that could lead to increased inflation, reduced international trade, and a drag on the global economy.”
“And while Trump has promised to crack down on illegal immigration and to initiate mass deportations, the effects of such policies on the US labor market, and on industries like construction and agriculture that depend on immigrants, can’t be reliably estimated.”
“The Federal Reserve, which cut short-term interest rates by a quarter point on Thursday, can’t be sure, under the current circumstances, what effect the next administration’s still-undetermined policies will have on the economy. What’s more, Trump has already indicated that he has little regard for the traditional independence of the central bank. Fed policy over the next year must be viewed as even less settled than usual.”
Sommer concludes that “no one can reliably predict the future. Worrying about it is entirely natural, and it’s possible that a second Trump presidency will represent a breach with history so great that what’s come before can no longer serve as a reliable guide to investing. Yet I doubt it. There is considerable evidence that you will be better off putting these worries aside, as far as your finances go, while embracing a slow and steady approach.”
Now for the caveat.
One approach that we do advocate is tax-loss harvesting (TLH). This was a big factor in 2022, when both the stock and bond markets declined significantly. TLH allows you to sell investments with losses and use them to offset gains elsewhere in your portfolio, which can be helpful for re-balancing purposes. If your losses exceed “realized” gains (i.e., from actual sales), then you’re also allowed to use them to offset up to $3K of ordinary income each year. And the losses “carry forward” indefinitely under current tax law.
So there might be opportunities before the end of the year to sell bond funds or stock funds that have declined, such as alternative energy, and realize some potentially valuable losses. If so, your advisor will be in touch with you in the coming weeks.