Trump Divide on Wall Street: Small companies soar, and the Giants stumble upon the market after the election

The U.S. stock market response to Donald Trump’s victory in 2024 election shows that while smaller U.S. companies see their stocks surge, the international corporate giants have responded softer, a letter from economics New research.

The comprehensive study, which analysed more than 1,500 publicly traded companies, found that the day after the election, small-cap stocks jumped nearly 3%, while the largest companies saw their stocks barely waver, down 0.08%. This huge difference highlights how investors bet on Trump’s “America First” policy, thus benefiting domestic businesses while potentially hurting multinational corporations.

“Our findings highlight the complex landscape that investors navigate after major political events,” said Shaker Ahmed, lead author and lecturer at the University of Surrey Finance. “Despite optimism about pro-business policies, there is geopolitical conflict.” The fundamental fear of volatility can lead to volatility. Investors must prepare for reality that returns can quickly turn into losses.”

The energy sector became the biggest winner, with shares soaring 4.46% a day after the election, possibly reflecting expectations for relaxing environmental regulations and increasing exploration of domestic fossil fuels. Manufacturing companies also saw huge gains, with their stock rising 2.09% as investors expect potential “U.S. Product First” policy to benefit.

Stocks fell nearly 1% the day after the election, suggesting investors are weighing the long-term impact of Trump’s victory.

This reaction is significantly different from Trump’s 2016 victory, which leads to a dramatic swing due to its unexpected nature. Research shows that while both Trump’s wins had positive market shocks, instant returns in 2016 increased significantly, reflecting the surprise factor of this victory.

The study reveals potential tensions between what researchers call the “hope hypothesis” – expectations of policy promotion for corporate profits versus expectations of “fear hypothesis” – concerns about potential trade wars and international instability, which may lead to Damage global business.

Smaller companies, often focusing on the domestic market, seem to benefit from expected policy changes such as deregulation and tax cuts. These companies face less risk of potential trade conflicts than multinational companies that rely heavily on international business.

“Understanding the impact of political events on market dynamics is crucial for informed investment strategies,” added Dr. Ahmed, highlighting the importance of investors recognizing these nuanced market responses.

The study, conducted by international teams at the University of Surrey, Macquarie University, Memorial University of Newfoundland and the Paris Business School, details how political activities have both opportunities and risks in the financial market, depending on the size of the company and industry.

As the market continues to deal with the impact of Trump’s restoration of power, the study shows that investors should carefully consider their portfolio allocation, especially given how various types of companies respond to differences in the new political landscape.