Much has been said about the stall in the so-called “Trump Rally” over the past few weeks. The S&P 500 has rallied 6% since election day, which ranks the Trump Rally 5th behind Herbert Hoover (+13.3%), John F. Kennedy (+8.8%), Bill Clinton (+8.8%) and Dwight Eisenhower (+6.3%). Almost all of the 6% however, came in the 4 weeks after the election. The S&P 500 opened the week of December 12th at 2258.83 and opened this past week at 2269.14, a gain of 0.4%. Since mid-December, stocks have gone nowhere and may people are looking for a post-inauguration sell-off. Does history expect it too?
History shows the S&P actually rising in the two week following the inauguration. Data by LPL Financial shows the index rising 77.8% of the time since 1953 for a median return of 1.2%, and then falling to 44.4% of the time one month after however for a median return of -0.8%. This is hardly a correction let alone a bear market.
Keeping in mind that in this data set, the one month, post-inauguration performance has been worse after a Republican president has taken the oath, we are not likely to see a large correction starting Monday. Business friendly policy promises such as regulation roll-backs and corporate tax cuts were the reason for the rally and the new administration has been uncharacteristically quiet on these promises since mid-December. However, a few things are falling into place for the new administration; earnings have been strong so far, economic data has been surprisingly strong in the last 2 weeks and the Fed is talking more hawkish about interest rates. Combine these with a stream of executive orders undoing old executive orders (including orders imposing new regulations) and the perception of a string business climate will be back in the market shortly. We do see potential for a sell-off, but our trigger for that sell-off has not materialized yet. If it does, we only see about 3.5% downside for the S&P. There will be many people waiting to buy the dip, which will help to prop the market up.