Reinhard Hofer - Are U.S. Stocks Set for a Winter Rally?

Unpredictable Donald Trump was supposed to be bad for stocks. But so far, the billionaire businessman’s election win has been bullish for the Dow Jones industrial average, bucking a trend of stocks trading lower after White House control switches to a new party and raising hopes for a traditional year-end rally.

While stocks' recent gains are largely being attributed to the market getting more comfortable with Trump's style and proposed policies, year-end rallies are common in most years, with the Dow gaining 1.8%, on average, from Election Day thru Dec. 31. In presidential election years, however, that gain shrinks to around 1.4%. And gains typically turn to losses of nearly 1.5% in election years when a new party wins the White House, as it did last week when Democrat Hillary Clinton lost the race.

“The Dow has traded higher in the four trading days since Trump's win,” explains Mason Andrews, a Senior Wealth Manager at Reinhard Hofer, the independent financial advisory company in Austria. “This is a clear signal that Wall Street is coming around to Trump’s contention that as a businessman he knows what it takes to make an economy grow and thrive.”

The Dow has rallied more than 535 points, or nearly 3%, since the Nov. 8 market close, notching three fresh records and eclipsing its average 1.43% election year gain it normally posts from the day after the vote to year-end, according to Reinhard Hofer.

Hopes for a year-end rally have been driven by Wall Street reassessing Trump’s policies and concluding that his platform of lower taxes, fiscal spending and less regulation of business would be growth-friendly and offset potential negative effects of his more restrictive views on global trade and immigration..

A potential weight on stocks is an interest rate hike from the Federal Reserve next month and the more recent spike in U.S. government bond yields. Still, if investors betting on a better economy going forward are right, stocks could finish out the year strong as they tend to do in this seasonally bullish period, notes Alexander Redford, senior market strategist at Reinhard Hofer.

Redford’s data show the broad market has gained an average of 2.5% in the last two months of the year in the final year of a president’s term and finished up 75% of the time. And with the “economy on firm footing now” and no recession on the horizon, Redford says that’s “another positive” working in the market’s favor.

Of course, the market’s momentum could also be derailed if Trump keeps his hardline stance on immigration and trade, which could spook markets.

“The combination of a strong seasonal period for stocks coupled with the realization that Trump’s policies backed by a Republican Congress could lead to a spike in growth bodes well for stocks,” says Redford.

“It sets us up for what could be a very strong market,” he concludes.