If I had the power to manipulate the market, I would create a massive dip before a massive rally. I can’t read Trump’s mind, but I can read his policy agenda. From that, it does appear that pro-business tax reform is on the horizon. I would bet, based on the way he does business, that he hopes political bias will drive his foes out of the market just before he takes action to promote market growth. Anger related to politics, combined with volatility-driven fear, is a dangerous cocktail of emotions that clouds judgment when making investment decisions.

I know people who wanted the market to crash so they could blame it on Biden, thereby feeling validated in their defense of their vote. I know people now who wished for the market to crash so they could blame it on Trump so they could feel validated in defending their vote. Although the two sides differ significantly, they behave in the same way from my view. Anyone who is avoiding the market and hoping it crashes, to prove a political point, is losing the game they are trying to play. My job is to step back and maintain an objective view of politics, allowing me to study policy and anticipate its impacts on markets free from the influence of bias.

The Tax Cuts and Jobs Act, which passed in 2017, is set to expire this year. Trump aspires to extend this tax policy as well as pass additional tax reform policies to support economic growth and domestic spending. The most impactful piece of tax reform in the Tax Cuts and Jobs Act was the corporate tax reduction. Corporate taxes were reduced from 35% to 21% to boost corporate earnings, allowing corporations to increase returns and wages, which in turn could support economic growth.  

Over the 4 years of Trump’s first term, the market saw a total return of 66%. What was different that time, though, was that his administration rolled out tax reform policy before tariffs. Trump’s trade war with China began in 2018, and that, combined with federal interest rate hikes, caused the market to end 2018 with a negative return. However, the three years that followed gave investors in the S&P 500 returns of 28.88%, 16.26%, and 26.89%, respectively. Those returns were largely attributed to the lasting impacts of the corporate tax reform.

This time, tariffs are being implemented first, inflicting pain now, but tax reform is forthcoming, and this time, it will likely be paired with interest rate cuts. That’s a powerful pro-growth combo overlapping a healthy labor market and a stable housing market.

Today, I invite you to look at market growth since 2017. Consider how many terrible things have happened since 2017 and consider that had you let your portfolio ride out every setback, your portfolio would have doubled in value over those 8 years.

Then look back an even further 8 years. I remember a lot of people fleeing the market during the greatest financial crisis of my generation, but had you stayed, in the 8 years that followed, your portfolio would have nearly tripled. Consider what this chart might look like in the next eight years and the next eight years after that. Do you expect to be alive in 16 years? 8 years?

I’ve heard other market strategists on the news today suggest that buying the dip doesn’t always work, and, looking back at the data, I have a really hard time agreeing with them.

Northshore Wealth Management may discuss and display, charts, graphs, formulas, stock, and sector picks which are not intended to be used by themselves to determine which securities to buy or sell, or when to buy or sell them. The information provided by a chart is limited and is not sufficient to be used on its own to make investment decisions. This information is offered as educational or illustrative only.