Is the Innovation Bull Run Triggered?

In Bear Markets (for innovation) we are always looking for signals which trigger the Bull Run. At my meetups earlier this year, I laid out the case for the 4 macroeconomic triggers, that could represent the signal, for the change to a bull market.

The macroeconomic environment is often a tapestry of complex, interwoven factors. Factors such as Interest Rates, Money Supply Increasing Liquidity, Dry Powder Coming Off the Sidelines, and the US Election results will ultimately be major drivers.

Will Trump winning the Presidency trigger a domino effect and create the next innovation boom, or was the market response immediately after a false signal?

Let’s explore the 2017 response and the post-election response and see if the past is a predictor for the future.

Interest Rates: The Precursor to Market Activity

Interest rates play a crucial role in financial markets by influencing the cost of borrowing and the return on savings. During the Trump era, the Federal Reserve’s decisions often leaned towards monetary tightening, which typically would cool down investment.

However, anticipation of policy changes, like tax cuts and deregulation, spurred investors to act even before rates could adjust, leading to a preemptive increase in market activity.

With the Federal Reserve dropping interest rates by 0.75% over the last few months, this could either represent the trigger we have been looking for or is a signal of challenges ahead. Federal Reserve Chairman Jerome Powell did say, “Everything is fine” when they cut rates by 0.5%.

Money Supply and Liquidity: A Trump Card for Markets

The Trump administration’s policies, especially the tax reform of 2017, led to significant corporate tax savings. This, combined with repatriated profits from overseas, increased the money supply in the U.S., enhancing market liquidity. Markets responded positively, as this liquidity often finds its way into stocks and innovative sectors, fueling a bullish trend.

Dry Powder: Unleashed During the Trump Rally

Dry powder coming off the sidelines was vividly observed in the immediate aftermath of Trump’s election in November 2016. Investors, buoyed by promises of deregulation and economic stimuli, deployed capital aggressively. The Dow Jones Industrial Average saw one of its most significant post-election rallies, with the market value soaring by over $1 trillion in the following 24 hours. This deployment of dry powder into equity markets signaled a strong investor confidence in the new administration’s pro-business stance.