There is no more anticipated event in 2024 than Election Day. With current President Joe Biden stepping aside, it was a certainty that someone new would lead our great nation forward over the next four years.
While not every aspect of the legislative process is relevant to the stock market, elections ultimately determine which elected officials will shape fiscal policy on Capitol Hill. While some aspects of election night are still being determined, as I write this on November 6, the biggest question of all has been answered: who will be president?
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In the early morning hours of Wednesday, November 6, the Associated Press called the election for former President and now President-elect Donald Trump.
Former President and President-elect Donald Trump delivers remarks. Image source: Official White House photo by Joyce N. Boghosian.
During Trump’s first term as president, which ran from his inauguration on January 20, 2017, through January 19, 2021, the stock market performed exceptional Good. The timeless Dow Jones Industrial Average(DJINDICES: ^DJI)widely supported S&P500(SNPINDEX: ^GSPC)and driven by growth stocks Nasdaq Composite(NASDAQINDEX: ^IXIC) increased by 56%, 67% and 138% respectively.
But the second half of Trump’s presidency was also marked by the early stages of the COVID-19 pandemic, which resulted in historically low interest rates and rounds of fiscal stimulus from the federal government. This is to say that it is night and day different to compare what happened in his first term with what could happen in the second.
While Wall Street’s response after the election was extremely optimistic, policy questions and concerns remain.
For example, President-elect Trump has stated that he would like to impose tariffs on goods imported into the US. Goods imported from China, the world’s second-largest economy by gross domestic product, would face a 60% tariff under Trump’s proposal, while goods imported from all other countries would face a tariff of up to 20% % to apply.
The purpose of tariffs is to promote domestic production and make American products more price competitive with goods imported into the United States. However, tariffs can have unintended consequences. In particular, they could increase costs for consumers and businesses and worsen trade relations with China and our allies.
There are also concerns about the rapidly rising US national debt. With Donald Trump favoring low tax rates for corporate and working Americans, this raises the question of whether any progress will be made in reducing the federal deficit during his second term in the Oval Office.
But despite these unknowns, Trump’s retake of the White House paves the way for a multi-trillion dollar investment for Wall Street.
Image source: Getty Images.
I know what you’re probably thinking, and I know it too not talking about artificial intelligence (AI). While PwC analysts believe AI will add $15.7 trillion to the global economy by 2030, it is not yet clear whether the new Trump administration will help or hurt the AI ​​revolution.
While almost everything is speculation at this point, one of the few aspects of a Trump presidency is actually a given that the corporate tax rate will not increase. During Trump’s first term, his flagship Tax Cuts and Jobs Act (TCJA) permanently lowered the peak corporate tax rate to 21%, the lowest since the late 1930s. Although Democratic Party presidential candidate Kamala Harris had proposed raising the corporate tax rate by 33%, this is now off the table with a Trump victory.
If the corporate tax rate remains at its lowest level in eight decades, Wall Street’s most influential firms can still do a lot with their extra cash. There is the possibility of additional staff, more research and development and even acquisitions.
However, the biggest impact of a Trump presidency, in my opinion, will be in stock buybacks.
Before the TCJA, quarterly stock repurchases by S&P 500 companies regularly fluctuated between $100 billion and $150 billion between 2011 and 2017. But once the TCJA cut the corporate tax rate from 35% in 2017 to the current 21% in 2018, it gave the green light for America’s most influential companies to buy back their shares.
Excluding the very early stages of the COVID-19 pandemic, when some companies halted or substantially scaled back their stock repurchase programs, quarterly repurchase activity for S&P 500 companies has regularly ranged from $200 billion to more than $250 billion per quarter. In short, buyback activity has grown 50% to 70% pre-versus-post-TCJA.
Granted, this is a correlational analysis and does not guarantee that companies will continue to pour large amounts of cash into stock buybacks during President-elect Trump’s coming term. On the other hand, history on Wall Street has a way of rhyming.
Chart of AAPL stock buybacks (quarterly).
According to data from S&P GlobalS&P 500 companies repurchased $235.9 billion of their own shares in the quarter ending in June, which amounts to more than $943 billion annually. Over the past decade (ending June 30, 2024), S&P 500 components have repurchased $7.03 trillion worth of their company stock, led by Apple ($687.2 billion), Alphabet ($271.4 billion), Microsoft ($195 billion), and Metaplatforms ($173.8 billion).
The reason buybacks are so popular is because they can help boost a company’s earnings per share (EPS) and make the stock fundamentally more attractive to investors. Companies with stable or growing net income and a declining number of shares outstanding will see their earnings per share grow over time. Apple, for example, has reduced the number of outstanding shares by more than 42% noticeable positive impact on earnings per share.
There may be $1 trillion or more in buybacks annual by S&P 500 companies during Trump’s second term, there is a real possibility that this multibillion-dollar investment will send stocks to new heights.
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Suzanne Frey, a director at Alphabet, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, former director of market development and spokeswoman for Facebook and sister of Mark Zuckerberg, CEO of Meta Platforms, is a member of The Motley Fool’s board of directors. Sean Williams has positions in Alphabet and Meta Platforms. The Motley Fool holds positions in and recommends Alphabet, Apple, Meta Platforms, Microsoft, and S&P Global. The Motley Fool recommends the following options: long January 2026 $395 calls to Microsoft and short January 2026 $405 calls to Microsoft. The Motley Fool has a disclosure policy.
Prediction: President-elect Donald Trump regaining the White House will pave the way for this multibillion-dollar investment to send stock prices soaring was originally published by The Motley Fool
