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Trump Trade: Did the Presidential Election Drive the Bull Market?

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Presidential election and the bull market

According to Richard Bernstein, policy implementation and how it impacts market fundamentals matter to the bull market (QQQ) (IWM) more than the 2016 Presidential election.

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Policy implementation and its impact on the fundamentals

The US economy depends on both monetary policy and fiscal policy. The Federal Reserve controls the country’s monetary policy. The Feds steps include controlling interest rates and money printing activity at various fluctuation points, as well as supporting the economy and the financial system.

The US government controls fiscal policy, allowing fiscal stimulus in the form of infrastructure investment, tax cuts, and defense investments in the economy (VOO) (IVV). If policy implementation doesn’t occur in the right way, it could lead to major problems for the country’s businesses.

The chart above shows that gross private domestic investment in the United States has been rising since July 2009. However, in 2015, this investment trend showed a slowdown. Despite rising domestic investment, the productivity in the US economy has remained low in the past few years. This shows how policy implementation and its impact on the fundamentals works.

Presidential politics versus fundamentals

Bernstein noted during his July 25, 2017, interview with CNBC, “Whether you like President Obama or didn’t like President Obama, the reality was the seven-year bull market, whether you like President Trump or don’t like President Trump, the reality is the bull market is continuing.” So, deciding investment strategy purely based on a political viewpoint is quite difficult.

The persistent lower interest rates by the Fed have been a primary driver of the market’s movement in the recent past. Between January 1, 2010, and November 1, 2016, the S&P 500 Index returned nearly 104% during the Obama administration.

The presidential election of November 8, 2016, saw Donald Trump’s election over Hillary Clinton. The S&P 500 Index rose ~15.7% between November 8, 2016, and July 27, 2017.

In the next part of this series, we’ll analyze Bernstein’s view of the risks to the market rally.

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