A person walks past the TMX Market Centre in Toronto, on Sept. 11.Paige Taylor White/The Canadian Press
Is the postelection party over? Markets rallied hard after Donald Trump won, sparking hopes of tax cuts and pro-business policies. But mid-month volatility renewed the shrieking of pundits worldwide. Many see his tough tariff talk and America-first rhetoric as toxic to global trade and the TSX. Relax. Stocks aren’t done celebrating falling uncertainty. While I haven’t formed my 2025 forecast yet, there is no reason to presume pessimism.
People often fear postelection crashes, largely based on biases about the winner. They assume the victory of one candidate will be good for stocks, while a win by the other will bad for markets. But stocks usually rally after an election no matter who wins. America’s S&P 500 rose in two-thirds of the 24 periods between the eve of an election and year-end since its 1925 inception. Exclude the five years with long pre-existing bear markets, and stocks climbed in 16 of 19 or 84 per cent, booking average gains of 3.6 per cent.
That positivity is felt globally. Consider correlation – a measure of how closely two assets move together. It ranges from 1.00 (identical movement) to minus-1.00 (the exact opposite). The TSX’s correlation to the S&P 500 is 0.81 over the past 20 years. They usually zig and zag fairly closely – as they did just after America’s election.
Why? For stocks, politics are chiefly about trends in uncertainty. Rising uncertainty discourages risk-taking. Falling uncertainty enables it, giving investors and businesses the clarity needed to plan. Rising uncertainty isn’t always an obvious headwind, as you saw from Canada’s modest outperformance since the NDP pulled its support from the minority Trudeau government. But it has hampered markets in Japan, Britain, France and Germany this year.
In U.S. election years, uncertainty usually rises early, as party primary fights foment extreme rhetoric. This limits those years’ average first-half market gains to 2.8 per cent. But in the years’ second halves, primaries end, nominees name running mates and form policy platforms. Polls indicate likely outcomes. Uncertainty falls. U.S. stocks gain an average of 9.2 per cent.
This year was unusual. Uncertainty was low early on, given how well-known Mr. Trump and President Joe Biden were, and that was reflected in above-average returns. Mr. Biden’s exit stirred summer uncertainty, stoking some faltering – but that faded fast. Hence, the strong first- and second-half returns.
After the election, stocks advanced as fears of an unclear, court-contested election vanished. Congress formed, favouring Republicans, although by margins that are super slim, which will hamper major bills. It won’t be bullish gridlock. But it is close. And uncertainty is falling.
Many gloomsters here – and globally – dislike the outcome. Bearish takes on Mr. Trump abound, citing his unusual cabinet picks, harsh rhetoric and tariff talk as huge negatives. But bears have short memories.
In 2016, pundits said the same thing. Mr. Trump entered office threatening tariffs, exiting the Trans-Pacific Partnership (TPP), threatening NATO and scrapping the North American free-trade agreement (NAFTA). Many fearfully scrolled through Mr. Trump’s Twitter feed in search of sudden policy shifts.
But, stocks jumped globally after the 2016 election – and rallied through 2017. Falling uncertainty again. Canada aside, non-U.S. stocks led! Why? People feared tariffs and protectionism. But Mr. Trump used that rhetoric to strike deals. Yes, he exited TPP talks. But NAFTA? Its replacement, the USMCA, modestly expanded its scope. China? He struck a deal there, too. Positive surprises. The tariffs he enacted happily didn’t cause recession. They mostly led to exporters rerouting through other countries, such as the re-exporting of goods through Vietnam, or companies “nearshoring” factories in Mexico (aiding Canadian consumers, too). Single-country tariffs are easily dodged. Canada’s markets lagged as a result of oil’s woes, not tariffs.
People say now is different, as Mr. Trump threatens 10-per-cent tariffs on all U.S. imports – even from allies like Canada. Congress long ago gave presidents varied authorities on tariffs. So many believe Mr. Trump can simply do this. No. These laws on raising tariffs (as Mr. Trump and Mr. Biden did) are chiefly based on national security or currency manipulation grounds. Global tariffs don’t really qualify as such. He may try piecemealing it through myriad product types and trade partners. Regardless, court challenges are certain.
Or, he may propose a new law. But getting that through such a tightly divided Congress? Challenging. Consider the past two years: House Republicans flipped leaders halfway through the term, struggled agreeing on a successor and passed little notable legislation. With a similar razor-thin margin now, will 2025 differ? Don’t bank on it.
Also, don’t presume protectionism is his endgame. He may want to craft a new TPP, folding participants into the U.S.’s free-trade orbit on new terms, or broaden the USMCA when it’s reviewed in 2026. There is already talk of exempting Canadian oil from new tariffs.
Do I know what’s in Mr. Trump’s head? Other than that Big Macs go into it and whoppers come out of it, no. But history shows positive surprises aren’t wild ideas.
My finalized 2025 forecast will appear here soon. U.S. politics will factor into it. But just partly. Global economics, geopolitics and sentiment matter more. Don’t greet January with preconceived pessimism.
Ken Fisher is the founder, executive chairman and co-chief investment officer of Fisher Investments.
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