The financial markets’ response to Donald Trump’s re-election extends beyond his mere return to the White House, reflecting more profound uncertainties tied to his leadership style. Recent research from the University of Surrey suggests a critical strategy for investors involves diversifying portfolios to mitigate risks associated with political turbulence and potential market fluctuations. According to this study, published in Economics Letters, there was an initial surge in stock prices following Trump’s election victory, a typical market reaction fueled by optimism over his business-friendly policies. However, this buoyancy was quickly tempered by investor worries about potential trade conflicts and international tensions, highlighting the complex interplay between politics and market dynamics.
The research involved a collaborative effort among scholars from various institutions, including the University of Surrey, Macquarie University in Australia, The Memorial University of Newfoundland in Canada, and the Paris School of Business. They used an event study methodology to analyze the impact of Trump’s 2024 election win on the stock market, focusing on the performance of over 1,500 companies listed on the Standard & Poor’s 1500 index. The data revealed significant abnormal returns around the election date, with notable effects on smaller companies and specific sectors like energy, which were anticipated to benefit from regulatory changes under the new administration.
Dr Shaker Ahmed, the study’s lead researcher and a Lecturer in Finance at the University of Surrey, discussed the dual impact of Trump’s presidency on market sentiments. He highlighted that while general optimism about the pro-business agenda Trump is expected to follow, there’s also considerable anxiety about the geopolitical unrest that could ensue, potentially leading to market volatility. This reflects the market’s wrestling with two contrasting expectations: the “Hope Hypothesis,” which foresees a boost in business climates, and the “Fear Hypothesis,” which warns of disruptions from trade tensions and policy unpredictability.
Concluding the discussion, Dr Ahmed emphasized the importance of understanding the full spectrum of political and economic implications of such political events for investors. He advised that grasping these dynamics is crucial for developing sound investment strategies, particularly during significant political changes. This perspective underscores the need for investors to remain vigilant and adapt to the evolving economic landscape, balancing their portfolios to align with immediate opportunities and long-term risks.
More information: Shaker Ahmed et al, The comeback effect: Market responses to Trump’s 2024 election victory, Economics Letters. DOI: 10.1016/j.econlet.2025.112170
Journal information: Economics Letters Provided by University of Surrey