How US Equities Warmed to Trump

Markets had priced in a Hillary Clinton win, but closed the year with a rally as many investors sense that Republican control and deregulation will increase corporate earnings

Dave Sekera, CFA 27 January, 2017 | 11:55AM

Investor focus in the fourth quarter centred on the U.S. presidential election and did not shift once Donald Trump claimed victory. Markets had priced in a Hillary Clinton win, but closed the year with a rally as many investors sense that Republican control and deregulation will increase corporate earnings. The Morningstar US Market Index closed the quarter up 4%, increasing its yearly gain to 12.4%. Rising consumer confidence levels mixed with forecast tax cuts led many stocks to trade higher and boosted various sectors over the past three months.

The U.S. Federal Reserve made the highly-anticipated move and raised interest rates a quarter point in mid-December. Markets reacted with relatively little movement to the news, but individual Fed governor forecasts suggested the possibility of three rate increases in 2017.

Previous forecasts hinted at two increases, so the change slightly shifted sentiment and reduced momentum in the markets. However, downward movement was only gradual, and investors are searching for catalysts as the positive impacts of potential stimulative polices from Trump’s team have largely been priced into securities.

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About Author

Dave Sekera, CFA  is a senior securities analyst with Morningstar.

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