What Does Trump's Second Term Mean for Investors, ETFs?
Investors seem optimistic as the next Trump administration could potentially usher in new tax cuts and more deregulation.
The second Trump administration has officially begun, kicking off what is likely to be an eventful next four years.
For ETF investors, there are more questions than answers about what Trump means for markets. There’s plenty to look forward to, like tax cuts and deregulation, but there are potential economic headwinds, like tariffs and mass deportations, too.
Investors seem to be taking an optimistic view of things for now. Since the election two-and-a-half months ago, the SPDR S&P 500 ETF Trust (SPY) and the Invesco QQQ Trust (QQQ) are up 4.3% and 6.3%, respectively.
Of course, the stock market has been steadily rising since it bottomed out in October 2022 after a 25% inflation-driven bear market, so it’s hard to disentangle how much of the recent jump is due to optimism about Trump’s policies and how much it has to do with overall bullishness in markets.
The AI Boom Looms Large
Indeed, while Trump will certainly drive the stock market from time to time while he’s president, other factors, like the business cycle and the boom in artificial intelligence, will likely be bigger factors for how the market performs over the next four years.
During Trump’s first term, SPY and QQQ rose 83% and 171%, respectively, compared to a gain of 65% for both exchange-traded funds during Biden’s presidency.
Tax cuts, the Covid-19 pandemic and a bubble in growth stocks were major factors driving the stock market during Trump’s first stint in the Oval Office.
On the other hand, the end of the pandemic, surging inflation, spiking interest rates, and the artificial-intelligence boom characterized Biden’s term.
In other words, events outside of a president's control usually play a major role in how stocks perform. The same will probably be true over the next four years with Donald Trump in the White House again.
