Why the ‘Trump Effect’ Continues to Affect Us
Trying to predict what the markets are going to do is often a losing bet. Investors need to filter out the hype and focus on their plan.


It’s kind of fun to watch the ways the stock market moves, and then theorize about what’s happening and why.
But if you’re reacting to each new “expert opinion” when managing your own portfolio, or examining every trend and pattern, well … good luck. It’s folly to imagine you can outguess the greed, optimism, fear and other emotions of Wall Street and your fellow investors.
How Wall Street Got the Election Wrong
Take, for example, the so-called Trump Effect, when stocks soared after the presidential election and then continued to produce record-setting highs.
From just $107.88 $24.99 for Kiplinger Personal Finance
Be a smarter, better informed investor.

Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
It all seems pretty logical now, with a businessman-turned-president who is expected to cut taxes, roll back financial regulations and, in general, be corporate- and investor-friendly. But that giddy market optimism certainly wasn’t what most experts were predicting before the election.
In contrast with what’s going on today, going into 2016, there didn’t seem to be a lot of confidence in the markets, here or globally, regardless of who the presidential candidates might be. Chinese markets actually used their “circuit-breaker” system multiple times, thereby suspending their markets, because things were so volatile. In the U.S., the S&P was down 5%, the Dow was down over 5.5% and small stocks as measured by the Russell 2500 Index were down 8%.
By all measures, it seemed the party was over and the bull market that started in 2009 finally might be running out of steam just as the election was getting close.
Conventional Wisdom Goes Awry
After the conventions, Hillary Clinton seemed to be Wall Street’s lesser of two evils: The market likes certainty — or so the conventional wisdom goes — and with her, at least you knew what to expect. Donald Trump was a wild card, the talking heads said. (And Clinton had a 90%-plus chance of winning, they told us.)
Of course, each party was predicting that if the other won, it would take the economy over a fiscal cliff. And even before the election, investors were wondering if they should just get out.
So, the election-night surprise was Trump’s win, and not the futures market’s reaction. According to CNN Money, Dow futures dove 870 points at 12:10 a.m., about a half-hour after Trump was projected to win Florida. (To put that into context, on the worst day in 2008, that number was 800.)
And yet, by the time Trump gave his victory speech, things had rebounded somewhat, and the day after the election, the Dow finished up 257 points. That means the total swing in about a 12-hour period was 1,000-plus points, or more than 5.5%.
Investors’ Worst Enemy: Themselves
Since the election, the S&P is up over 10%, as of early July; the Dow is up over 12%, and the Russell 2500 is up almost 12%. And all those people who tried to guess at what to do just before and just after the election? A lot of them likely guessed wrong — selling low and then buying high to get back in.
Now, this may be one of the more well-known and recent examples of a profound market mood swing, but phenomena like the Trump Effect are not at all unusual.
According to the most recent Dalbar study, the 2016 “Quantitative Analysis of Investor Behavior,” the main reason investors who participate in the markets underperform over time is psychology, due to behaviors such as panic selling and herding.
In other words, trying to time the market hurts far more than it helps.
No More Knee-Jerks … Take a Long-Term Approach
Why are investors so skittish? Information overload. We have so much information to sift through, it’s almost impossible to decide what’s good and what’s biased. And you can’t turn it off. It’s like trying to diet on a cruise ship.
We end up forming an opinion based on what we feel, and we tend to opinion shop until we find a financial professional who matches our preconceived biases, without really knowing that person’s track record or what information he or she has.
That’s why, these days, for financial professionals, educating our clients has to be one of our top goals. Your adviser should be coaching you and monitoring your plan, making sure your risk level is appropriate for your situation and helping you navigate through conflicting signals.
Because, as you can see from the Trump Effect, the markets can move really quickly — for reasons that sometimes can, but often cannot, be predicted or explained.
Kim Franke-Folstad contributed to this article.
Profit and prosper with the best of Kiplinger's advice on investing, taxes, retirement, personal finance and much more. Delivered daily. Enter your email in the box and click Sign Me Up.

Blake Morris is a CERTIFIED FINANCIAL PLANNER™ professional with The Lloyd Group Inc., based in Suwanee, Ga., where he develops customized plans for retirees and soon-to-be retirees. Blake is licensed to sell insurance.
-
What Dave Ramsey and Caleb Hammer Taught Me About Handling Money
From Ramsey’s strict discipline to Hammer’s blunt reality checks, their lessons reveal how to save, invest and prepare for the future.
-
Dismal August Jobs Report Offers Rate-Cut Relief: What the Experts Are Saying
The August jobs report came in much lower than expected, lifting the odds that several rate cuts will come through by year's end.
-
Greed, Fear and Market Volatility: A Financial Adviser's Guide to Keeping Emotions Out of Investment Decisions
Don't panic! And don't be so confident in the stock market that you overlook risk. Instead, be logical. Your retirement security could depend on it.
-
Want a Financial Adviser Who Shares Your Faith? Look for One With a CKA Designation
Financial professionals with a Certified Kingdom Advisor certification are committed to integrating biblical principles with sound financial advice.
-
10 Ways to Stay Safe From Grandparent Scams and Other Fraud, Courtesy of a Financial Planner
Scams are increasingly hard to detect, and anyone can be fooled, from older people to educated professionals. Here are 10 ways to avoid becoming a victim.
-
This Is How the Student Loan Bubble Is Primed to Pop, From a Student Funding Expert
Fueled by easy money, inflated tuition and high default rates, the student loan bubble mirrors the 2008 subprime mortgage crisis. We could be headed for a potential financial collapse. What can we do?
-
More Than Money: The Hidden Toll of Financial Abuse of Older Adults
Financial abuse from schemes involving tech support, government impostors, false sweepstakes, grandchild hoaxes and online shopping issues can cause thousands of dollars in losses.
-
I'm a Financial Planner: Here Are Three High-Impact Ways to Make a Difference With Your Dollars
The world often feels out of control, but here are three ways to use your money — through investments, charitable giving and political donations — to help create a more just and sustainable future.
-
The Unsung Hero of Aisle 5: A Tale of Forgotten Change and Compassion at the Supermarket
This supermarket manager went above and beyond to help when a child forgot her change at the checkout counter. You might be surprised at some of the complications that supermarkets face when it comes to customers' forgotten change.
-
Train, Integrate, Retain: A Strategic Playbook for Adviser Onboardings
Build a thriving practice by training new advisers with clear goals, structured processes and consistent mentorship for strong team growth.