The Trump bump is fading, but consumer strength can propel the stock market forward

On By Littum

Stocks fell last week after hitting record highs following Donald Trump’s election victory. The initial “Trump bump” may be fading as expectations of juicy corporate earnings — thanks in part to deregulation and lower tax rates — are increasingly priced into the market. Election results aside, however, one prominent portfolio manager likes what she sees of the U.S. economy and, most importantly, American consumers.

Economic data on GDP growth and inflation are pointing in the right direction, said Stephanie Link, investment strategist at Hightower Advisors. Assets late last week. While polls suggest that economic discontent played a massive role in driving Trump’s return to the White House, there are signs that the general mood is improving.

“You have this consumer that’s just adamant,” Link said, “and a lot of that is because they have jobs, they have wage growth that’s higher than inflation — at least today — and they’re spending.”

In many ways, the election results proved to be a positive catalyst for the markets simply because they resolved an unknown, she added. The S&P 500 posted its best post-Election Day session ever, with the index up more than 3.5% in the second week of November. $56 billion flowed into U.S. stocks through Nov. 13, according to strategists at Bank of America using data from EPFR Global, cited by Bloomberg.

Link noted that the Federal Reserve’s quarter-point rate cut, along with news of China’s $1.4 trillion spending package, addressed other sources of uncertainty.

“We all breathed a sigh of relief,” said Link, who manages a $5.2 billion stock portfolio and is a regular CNBC contributor.

Consumer data is coming in strongly

The mood on Main Street also appears to be improving, although many Americans remain wary of higher prices. On election day, the purchasing managers’ index, a benchmark target of economic activity, hit its highest level since July 2022. A reading above 50 is considered expansionary; last month’s Services PMI, as it’s commonly called, registered 56%, up 1.1% from September.

“Two and a half years ago, we were just coming out of COVID,” Link said, “so you could understand why services would be so strong. Fast forward to today, the consumer still wants experiences. The consumer still spends.”

However, Trump’s victory illustrated that many Americans do not share a similarly rosy view. About 40% of voters considered the economy and jobs to be the country’s biggest issue, according to to Associated Pressand the electorate overwhelmingly supported the Republican nominee to return to the Oval Office.

Link acknowledged that the country’s recent struggle with inflation, which has hit four-decade highs, has hit less wealthy Americans particularly hard. Their struggles may not be evident in spending data. Last year, a report by Morgan Stanley found that the top 20% of American wage earners would account for nearly half of all consumer spending between 2020 and 2022.

“I think you have the haves and have-nots with the consumer, and I’m obviously empathetic to the mid-range and the low end,” Link said.

But Americans should increasingly feel the effects of an improving economy, she said, which will likely be good news for the markets. The S&P may have dropped over 2% last week, but Link is still bullish so far.

“In my 33 years, it has always been wrong to bet against the consumer,” she said.

And now, according to Link, doesn’t seem like a good time to start.

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