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.
Elections: Setting the Stage for Market Dynamics
The Trump election in 2016 was a pivotal moment for markets, with the unexpected victory leading to a surge in market activity. Within 48 hours of his win, the stock market experienced a notable bull run. The S&P 500 and Nasdaq both climbed, reflecting investor optimism about potential policy shifts like tax cuts, infrastructure spending, and deregulation. We saw this immediately following this week’s election results.
The Value Surge in Crypto Markets
Interestingly, the crypto markets also reacted to the Trump presidency’s signals. Post-election, as the stock market rallied, Bitcoin also experienced a surge, with its value increasing markedly in the days following the election. As we highlighted previously, crypto is the winner in the US elections. Bitcoin (BTC) surged significantly, reaching an all-time high of $75,000. Dogecoin saw an increase of nearly 30%.
Technological Platforms: Amplifying Market Movements
The convergence of technology platforms during this period facilitated rapid market responses. Blockchain technology, for instance, was at the forefront of the crypto boom, with platforms enabling faster, more secure transactions and smart contracts that could revolutionise finance. AI-driven analytics platforms helped investors make quicker, data-informed decisions, contributing to the efficient deployment of capital during these market movements.
Conclusion
The Trump presidency offers a case study in how macroeconomic signals can trigger market booms, particularly in innovation-driven sectors. The alignment of low interest rates expectations, increased liquidity from tax reforms, the deployment of dry powder into equities, and a market-friendly election outcome created a perfect storm for a bull run.
This period not only saw significant value creation in stock markets but also highlighted the growing influence of cryptocurrencies and technology in shaping financial landscapes. As markets look forward, understanding these dynamics can help anticipate future economic trends and investment opportunities.