Stock-Market Bulls Abandoned by Trump Won't Be Saved by Jerome Powell and the Fed

The stock market has been on a rollercoaster ride, and the recent political and economic climate has left many investors wondering if the bulls will continue to run or if a bear market is on the horizon. The Trump administration's policies, such as tax cuts and deregulation, initially boosted the stock market, but the subsequent changes under the Biden administration have left many investors uncertain about the future. Now, with Jerome Powell at the helm of the Federal Reserve, investors are looking to the central bank for guidance and stability. However, the question remains: will Powell and the Fed be able to save the stock market from the uncertainties that lie ahead?



The impact of political events on the stock market cannot be overstated. From the 1997 Asian financial crisis to the 2008–2009 global financial crisis, and more recently, the 2011–2013 European debt crisis and Britain's 2016 vote to leave the European Union (Brexit), political uncertainty has had a significant impact on global financial markets. These events have caused stock prices to fall, especially for firms that are more sensitive to government policy changes. The materials also mention that political uncertainty commands a risk premium whose magnitude is larger under weaker economic conditions. This suggests that political events can have a significant impact on investor sentiment and market volatility in the U.S. stock market.

The cyclical nature of global markets and the performance of international stocks, as discussed in the article, have significant implications for the current political and economic climate in the U.S. The article highlights that while the U.S. stock market has historically outperformed over shorter periods, international markets have shown resilience and even surpassed the U.S. over longer time frames. For instance, the data shows that the MSCI World ex-U.S. Index has a higher win percentage in rolling 10-year returns compared to the S&P 500. This cyclical pattern suggests that periods of U.S. market dominance are followed by periods where international markets take the lead.

In the current political and economic climate, the U.S. has experienced strong economic growth and rising stock valuations, which have contributed to its outperformance over the past decade. However, the article notes that "the U.S. dollar’s strength over the past decade subtracted 2.1 percentage points from international returns, overshadowing the 1.1 percentage points of outperformance from higher dividend yields in international markets." This indicates that currency fluctuations have played a significant role in the relative performance of U.S. and international stocks.

Looking ahead, projections suggest that international stocks could outperform U.S. stocks by an average of 2.2 percentage points annually from March 2023 through March 2033. This expectation is based on median projections of 5.1% annual returns for U.S. stocks and 7.3% for international stocks. This potential shift in performance could be influenced by various factors, including changes in political stability, economic policies, and global trade dynamics.

The article also discusses the impact of political uncertainty on asset prices, using the Bo Xilai scandal in China as an example. This event led to increased political uncertainty and a significant drop in stock prices, highlighting the sensitivity of markets to political events. In the current U.S. political climate, similar uncertainties could arise from factors such as trade policies, regulatory changes, or geopolitical tensions, which could affect market performance.

In summary, the cyclical nature of global markets and the performance of international stocks suggest that while the U.S. market has been strong, there is potential for international markets to outperform in the future. The current political and economic climate in the U.S., characterized by strong economic growth and rising stock valuations, may be followed by a period where international markets take the lead, influenced by factors such as currency fluctuations, political stability, and global trade dynamics.