A Student's Guide to Understanding the Political Attributes of the Stock Market

By Erica Gleeman on February 27, 2017

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Knowing how to understand different languages in this day and age is a vital part of life. English is decreasing its fluency across the globe, now with only approximately 25 percent of the world fluent in the English language. Similarly, the stock market is on a global scale and has a foreign language of its own. The beauty in the stock market is the unity it holds with a vast range of diversity. All people can stay solely fluent in their native tongues and yet still be able to communicate in the stock market.

The stock market is a global market, but different countries have their own stock exchanges. This means they have different physical locations of where stocks trade. Stocks are shares of ownership in a corporation. The stock market is comprised of thousands of stocks from publically traded companies. Millions of shares of stock can be bought, sold, or traded on a daily basis from these companies. Individuals and companies invest in the stock market to make money, making them shareholders. The shareholders invest in companies they believe whose earnings will steadily grow over time, and their stock prices will reflect accordingly.

The stock market is open Monday through Friday, from 9:30 a.m. to 4:00 p.m., but managed futures does not close. Typically, professional investors trade through managed futures when the market is closed, which often can foreshadow the stock market’s expected rise or fall the following day. Managed futures is commonly used as a premarket indicator that can allow investors an opportunity to trade stock options past business hours.

Now, what do politics have to do with the stock market?

With the recent election of the 45th President, the stock market has taken an unexpected twist. In the few months prior to Election Day, strong predictions were made expecting the stock market to plummet if Donald Trump won the presidency. Then on the eve of Election Day, after Trump was elected, the stock market was predicted to drop more drastically than expected, and managed futures on the DJIA were down about 870 points. Managed futures shows how well they think the stock market will do the next day and is a common means of how many people judge the market.

An uproar of panic spread like wildfire amongst investors, as top market strategists were behind the prediction. Expecting that the market would drastically decrease due to the uncertainty of Donald Trump’s policies, the reverse happened, and the stock market skyrocketed to all-time highs. The DJIA in regards to the stock market went up 257 points the following day and has continued to go up, even three months later. The stock market has increased over 10 percent since Donald Trump has been elected. It is comical, yet quite ironic that the market strategists’ short-term predictions were so wrong being their sophisticated background of the field. These expert market technicians are highly paid by the top brokerage, advisory, and money management firms in the industry.

Why would the uncertainty of Trump’s White House affect the stock market?

The stock market does not like uncertainty, as uncertainty makes the stock market volatile. Uncertainty tends to create chaos, whereas the runner-up to Trump, Hillary Clinton, was predicted to have a calm impact on the stock market. Clinton was a politician the stock market trusted; they knew what she stood for. Trump, on the other hand, was not the typical presidential candidate, as he was not a politician, but a businessman with money as his historic motive. Trump was different than other political candidates because he was the wild card and people did not know what Trump, or his following, were to do in many areas. The Trump White House carried the essence of uncertainty.

Investors had growing concern regarding the inherent uncertainties of the Trump White House. This caused a somewhat domino effect with much of the world gaining reservations with Donald Trump’s lack of political acumen.

Trump had the potential to damage policies. He had expressed his wishes to abolish national programs, such as Social Security and Obamacare. Scared of the stock market predictions with the major ‘unpresidential’ risks Trump held, a large pullback occurred in the stock market. Many people were ready to sell out of their portfolios and buy stocks at bargain prices, but the market has yet to pull back. One of the hardest aspects of the stock market is knowing when to sell. The ones that sold out already made a mistake because they could have made a very good short-term gain in the upward moving market over the past three months.

Against the odds, why would the stock market have a positive impact of Donald Trump’s Presidency?

The campaign slogan for Donald Trump was ‘Make America Great Again’ which acted as a rippling effect for his platform, to spread belief amongst the economy to become strong again. The morning after the election, many people regained confidence over their doubts in Trump’s help with strengthening the economy.

Trump wants to make America more competitive with federal tax laws. He had promised to create more jobs in America by bringing back money from overseas. Tax codes outside of the United States are more favorable to American companies because they can make more money abroad through maintaining offices or plants outside the country. With Trump’s plan to bring back these American operations from assets abroad, he wishes to make it more profitable for the companies and our country by offering tax incentives to get them back. He plans to reduce the corporate tax rates, which would cause earnings to be greater, pushing stock shares higher.

Similarly, Trump wishes to reduce the individual tax rates. These lower tax rates would be well received by citizens, as they would pay less in taxes and keep more money in their paychecks to personally have more disposable income.

Americans would have more opportunity to participate in the growth of the American economy. This would allow for stronger earnings, an increase of jobs, and reduction of regulations amongst companies and citizens. Therefore, more money would become available to invest in the stock market.

Why is this relevant to you as a college student?

The financial industry is something a majority of college students lack knowledge about. There is a general unawareness that the stock market is relevant to their lives. It can be assumed because many college students don’t have much spending money that the stock market is of no interest to them. This is quite relevant because when they start making money after college, they should start saving money right away. If the stock market is doing well, then the economy is typically doing well. Likely, if the economy is doing well, there are usually more jobs available because companies would be hiring more employees to expand and grow. This allows more opportunity in the job market, specifically relevant to students looking to start their careers.

Additionally, in regards to thinking about your future, the stock market can help grow your assets for a solid, confident, and comfortable retirement. Many jobs have benefits in which the underlying investments directly reflect the stock market. For example, if you have a retirement plan such as a 401k (a benefit you may be able to have at places of work), and the stock market tanks, then your 401k is not as valuable and its worth will also decrease. On the other hand, if the stock market goes up, so will your 401k value.

A smart investor knows his best odds of making money are over the long-term. So a young investor such as a recent college graduate can invest in the SP500 and have his money grow over 40 years before they need it for retirement. The SP500 is a broad index of the largest 500 companies in the USA. It has an average 9 percent annual return over the last 88 years. For example, a $10,000 investment would be equivalent to $160,000 in 32 years if the market were to continue its 9 percent average.

What else should you know?

Making America think again; this is meant to act as a general breakdown to those not well educated in the stock market, specifically related to politics. The stock market can be helpful to you for saving for large expenses such as a house, retirement, college savings plan, and even having children. Investing money in the stock market should be a long-term investment. Five years is a solid minimum time frame to have your money in the stock market, before selling out to receive the potential benefits.

You have a relation to the stock market, even if you are not directly aware or involved.

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