How Trump’s Iowa Caucus Win Could Affect Your Investments in 2024


  • Donald Trump’s win in Iowa has stoked interest in specific stocks and the market as a whole.
  • Another Trump presidency is still questionable, yet the market appears to be pricing in better probabilities.
  • Here’s what investors should watch for those looking at stocks from a political angle.
iowa caucus - How Trump’s Iowa Caucus Win Could Affect Your Investments in 2024

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On January 15, 2024, the 2024 presidential election season began with the Iowa caucus, where former President Donald Trump secured a win. This victory positions the former president for a potential rematch with President Joe Biden. Despite the insights it may offer for the upcoming general election, markets seem indifferent to the potential impact of the November election. 

At the time of writing, a highly-anticipated matchup in New Hampshire is brewing between Trump and former South Carolina Governor Nikki Haley. The results of this primary could determine who is the Republican nominee for president, with Trump likely to win (given a current double-digit point lead).

While election outcomes can influence government policies and foreign relations, U.S. Bank investment strategists delved into 75 years of market data to understand recurring patterns during election cycles. The analysis finds little impact on markets from potential election outcomes, with historical data showing economic and global trends are more influential than election results. 

While most scenarios have minimal effect, a few could slightly impact market performance. How have past elections affected markets, and what might happen in 2024?

Recent News on Trump’s Controversial Presidential Comeback

Despite being the leading contender for the Republican nomination in the 2024 election, Trump faced legal challenges in Maine and Colorado, where election officials ruled him ineligible due to his actions during the Capitol riot. Appeals are ongoing, and the Supreme Court will address the Colorado case in February.

In Maine, Secretary of State Shenna Bellows, a Democrat, ruled that Trump must be removed from the Republican primary ballot due to his involvement in the Capitol riot. The Trump campaign accused her of making a politically motivated decision, but Bellows defended her ruling as thorough and lawful. Bellows expressed hope that the Supreme Court would provide a nationwide resolution.

In December 2023, the Colorado Supreme Court, in a first-time use of Section 3 of the 14th Amendment, disqualified the former president from the state’s ballot, citing “clear and convincing evidence [he] engaged in insurrection.” Trump’s lawyers argued against disqualification, emphasizing his lack of incitement charges.

SCOTUS is set to make a national ruling following appeals by the Colorado Republican Party and Trump regarding the state disqualifications. The court, leaning conservative, fast-tracked the case for a February decision before the March primaries.

The Trump campaign denounced the recent ruling, claiming persecution, but the decision’s broader impact on the general election looms. Similar lawsuits in other states could gain traction based on the Colorado and Maine rulings, affecting the presidential race’s competitiveness. The Supreme Court’s intervention ensures consistent eligibility rules nationwide.

News on Trump-linked stocks

Digital World Acquisition (NASDAQ:DWAC), the blank-check company slated to launch former President Donald Trump’s social media platform, saw its shares climb 29% to $22.35 on January 16 after Trump secured victory in the first Republican contest in Iowa for the 2024 GOP primary race. The triumph bolstered Trump’s argument that his nomination is all but assured, given his significant lead in national polls.

DWAC trended on, sparking discussions among retail traders, and CEO Matthew Tuttle noted the ongoing drama. The company’s shares plunged nearly 90% due to delays in the merger with Trump Media & Technology Group, the parent of Truth Social, the year after the announcement. While uncertainties persist, the company expects the merger to close in Q1 2024.

Phunware’s (NASDAQ:PHUN) share price increased from $.076 to $0.42, and Rumble (NASDAQ:RUM), a favored video-sharing platform among conservatives, saw a 15% jump after the Iowa caucus.

The Iowa Caucus

The stock market had to consider the potential return of Donald Trump to the White House following his victory in the Iowa caucuses. Trump asserted the market was rising due to his lead in polls against President Joe Biden. While market reactions are subject to interpretation, predicting them accurately, as seen with interest rates in 2023, can be challenging.

Investors will soon see who is right. Despite December’s higher inflation, traders still anticipate about a 60% chance of a Federal Reserve rate cut by March, posing a risk to stocks given the late-2023 rally’s reliance on this expectation. Insights from Fed Governor Christopher Waller’s comments last January 16 and key data, including Wednesday’s retail sales and the Fed’s first 2024 beige book, could influence the market’s steadfast belief in a March rate cut.

What Can Happen if Trump Wins

Donald Trump’s victory in the Iowa caucuses has prompted speculation on the potential impact of another Trump presidency, particularly on certain stocks. Trump secured 51% of the vote and 20 delegates, increasing discussions about his chances as the GOP nominee. 

Although uncertainties persist about the presidency and control of Congress, Wall Street is beginning to consider the potential outcomes of a second Trump administration.

Defense could see increased spending under a potential second Trump administration, although his specific policies remain unclear. The 2024 Department of Defense budget is approximately $842 billion, potentially benefiting military and defense contractors. 

Increased military spending, possibly prompted by incidents in the Red Sea and U.S.-China tensions, would positively impact defense stocks. The defense sector is seen as a winner in this scenario. Regional banks could also benefit from Trump’s desire to loosen banking regulations, particularly capital requirements, as opposed to Biden’s inclination for stricter rules. 

The potential toughening of Basel III standards this year might impact banks, necessitating higher capital percentages to ensure financial stability.

Analysts project growth for companies like General Dynamics (NYSE:GD), Lockheed Martin (NYSE:LMT), Northrop Grumman (NYSE:NOC) and Raytheon Technologies, with varying annualized rates ranging from 3.6% to 6.7%.

Trump aims to reduce capital requirements, potentially freeing up capital for lending in the banking system. The SPDR S&P Regional Banking ETF (NYSEARCA:KRE) might benefit from eased regulations, raising market expectations for bank profits and supporting bank stocks. 

While various factors influence shares, including earnings, demand for goods and services, borrowing enthusiasm and interest rates, relaxed regulation is seen as a positive factor.

Effects of Presidential Elections on Stock Markets

U.S. Bank analysts, examining data since 1948, calculated the statistical significance of the relationship between political control and market performance, focusing on average 3-month returns following election outcomes using a t-test. They also considered periods of party control changes.

The analysis challenges the idea that Republican or Democratic dominance in both the presidency and Congress disrupts markets. Historically, no significant link exists between single-party control and market performance. Instead, three divided government scenarios showed noteworthy market impacts.

While election results may draw investor attention, other factors play a more substantial role in portfolio impact. Historical data indicates economic and inflation trends, not elections, consistently correlate with market returns. 

Rising economic growth and falling inflation typically yield above-average returns. Conversely, falling growth and rising inflation result in positive but below-average market returns. Investors may find more insight in these patterns than in election outcomes for predicting market performance.

Bottom Line

In the next few months, evolving election scenarios will become clearer. Observing sectors impacted by policy changes is wise. Despite the presidential election dominating headlines, the 2024 general election is still a ways away. Thus, investors may want to prioritize factors like economic growth and inflation over politics — at least for now.

Chris MacDonald’s love for investing led him to pursue an MBA in Finance and take on a number of management roles in corporate finance and venture capital over the past 15 years. His experience as a financial analyst in the past, coupled with his fervor for finding undervalued growth opportunities, contribute to his conservative, long-term investing perspective.

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