Post-election market crosscurrents

Key takeaways

• Until more details are laid out and policy is implemented, markets may struggle knowing how to properly adjust.
• We are monitoring market crosscurrents, but it’s too early to reasonably predict tariff impacts.

The holiday season kicked off early this year with a post-election pop. My team anticipated the gift of gains even before a Santa Claus rally, considering that markets have historically seen upside (regardless of the result) following a presidential election. Certain market moves could be speculating on administration-specific policies, but an array of crosscurrents make it difficult to discern what long-term trends to expect.

Major American indices popped in a moment of euphoria immediately after the election, moderating out after a few days. US stocks made decisive moves upward yet still sit along their general year-long bullish trend. Reindeer games aside, we consider a strong economy and solid year of earnings growth to still be the primary drivers of the market.

We haven’t let potential tariffs evade our line of sight. Clients ask us about them at every turn, and the answer is unsatisfactory to say the least. We just don’t know… yet.

As an additional tax, tariffs increase the total cost of imported goods. That is typically reflected in the end price of goods for tariff-affected industries. The recent rise in long-term yields suggests that the bond market could be feeling out these potentially inflationary pressures.

Broad tariffs could very well be a one-off price increase, causing a bump that would disappear from inflation figures after a year. Depending on the breadth of tariffs, it’s also possible that they won’t be noticeable in headline inflation numbers.

Consumer Price Index (CPI) measures of tariff-impacted goods categories rose after 2018 tariff policy, according to Goldman Sachs. At the same time, core goods still inched lower because the tariffs only impacted select goods. Breadth and magnitude are critical information to have about tariffs before markets can accurately price an impact.

A plurality of mechanisms exist that could counteract, or embolden, inflationary pressure from tariffs. The Intercontinental Exchange’s US Dollar Index flashed a bullish sign by rallying into and after the election. A stronger USD works against tariffs by boosting American purchasing power of international goods. While this could be a temporary exchange rate swing, it reveals a faction of investors that’s bracing for strong dollar conditions.

These crosscurrents are complicated, right?

The reality is that until more details are laid out and policy is implemented, markets may struggle knowing how to properly adjust. Yields at the long end of the curve and US stocks both made moves indicating some adjustment yet notably held back from major shifts.

In the near-term, we don’t expect these things to be sorted out. What I can say is ‘tis the season for seasonality.

Historical S&P 500 data¹ shows that November through January has tended to be a strong period for stocks. The period from election day to inauguration similarly tends to be particularly jolly. While we can’t count on historical averages to be a reliable predictor of future returns, it gives us valuable insights into investor behavior.

Any potential bullish seasonality is well supported by the current landscape. Regardless of what 2025 may or may not have in store, 2024 brought positive surprises in corporate earnings and GDP (gross domestic product). Factset reported a 4.5% surprise in Q3 corporate earnings as of November 22, paired with real GDP growing at a 2.8% clip according to the Bureau of Economic Analysis. Yet, all I want for Christmas is 2… % inflation.