Honeymoon may be over for ‘Trump rally’

cording to data compiled by investment firm Gluskin Sheff.

The only other U.S. presidents to enjoy bigger gains after their election wins and before officially taking office were Democrats Bill Clinton and John F. Kennedy and Republican Dwight Eisenhower.

Wall Street has reacted positively to Trump’s businessfriendly agenda, which calls for tax cuts for corporations, fewer regulations on businesses and a healthy dose of government fiscal spending. As a result, investors have been buying stocks in anticipation of what they believe will be a faster-growing economy, a better environment for businesses and more jobs.

“The rally has been driven by expectations of what a Trump presidency might do for the economy,” says Randy Frederick, vice president of trading and deriva- tives at the Schwab Center for Financial Research.

But now comes the difficult part, as a rally built on hope now shifts to a market less interested in Trump’s policy proposals and more interested in which planks of his proposed plan, such as corporate tax reform and deregulation, actually get put into effect and when. The S&P 500, which post-election was up as much as 6.4% at its record close Jan. 6, has been under pressure recently, pulling back 0.6% in the past eight sessions as the rally entered a “show-me” phase.

“The hard part starts now,” says Jerry Braakman, chief investment officer at First American Trust. “Trump must shift from election politicking to actual implementation. In his first 100 days in office, the key will be whether he can move on from trying to tweet change to making actual change happen and getting Congress to get in line with what he wants to accomplish. That’s easier said than done.”

Historically, S&P 500 stocks have struggled in the month after Inauguration Day, posting an average loss of 0.44%, before gaining positive traction three months (+3.31%) after the president takes office and climbing even more through year-end (+6.10%), according to Bespoke Investment Group data.

There’s a bearish trend Trump rally cheerleaders should keep in mind. The S&P 500 has posted losses from Inauguration Day through Dec. 31 all four times “when a Republican challenger like Trump has replaced a Democrat exiting office,” Bespoke’s Paul Hickey noted in a report. The losses range from a 5.1% drop following Dwight Eisenhower’s inauguration in January 1953 to a 14.5% slide after George W. Bush took office early in 2001 after defeating Democrat Al Gore after Bill Clinton’s second term.

How the market reacts to the start of Trump’s presidency could be determined by investors’ reaction to his inauguration speech, says Paul Christopher, head global market strategist at Wells Fargo Investment Institute.

“Trump’s inauguration speech is important,” Christopher says. “It’s his first chance to lay out a real plan. People are waiting to hear some degree of detail on the policies he is prioritizing and some direction on timing. We will be looking for something concrete.”

“Trump’s inauguration speech is important. It’s his first chance to lay out a real plan.” Paul Christopher, head global market strategist at Wells Fargo Investment Institute