On the anniversary of Trump's election, the US stock market rose 18%, with AI frenzy replacing tax cuts as the market's "main engine."

According to the Zhitong Finance APP, Donald Trump's re-election was originally expected to create a prosperous stock market; the stock market did rise, but the reasons were vastly different from what the forecasters envisioned. Since Trump won the election on November 5, 2024, the S&P 500 index has soared 18%, reaching an all-time high by the end of October and recording six consecutive months of gains.

At the beginning of the market, there was a general expectation that Trump's plans for significant tax cuts and deregulation would lead to economic prosperity. Although the tax cuts were largely realized, the true narrative driving the market was his drastic reshaping of U.S. trade policy—tariff threats and repeated rollbacks have pushed a policy uncertainty indicator to its highest level since 1900, causing intermittent surges in stock market volatility, most notably when Trump introduced the most severe tariffs in 90 years in April.

"This is one of the most extreme market volatility outbreaks we've ever seen," said Dean Curnutt, founder and CEO of Macro Risk Advisors LLC.

If it weren't for the new wave of artificial intelligence, the stock market's gains would have been much more subdued. Large tech companies contributed the bulk of the index's gains, while traditional industrial firms and consumer goods sellers struggled amid tariffs and economic slowdown. Excluding the equal-weighted version of the S&P 500, which is less market-cap weighted, the index has only risen 5.2% this year, with the median stock gaining just 1.2%, while the seven major tech giants accounted for more than half of the market's gains.

Figure 1

Aside from a small fluctuation in January due to the Chinese DeepSeek application, the AI boom has propelled Nvidia (NVDA.US) to become the first company with a market capitalization exceeding $5 trillion, while Apple (AAPL.US) and Google (GOOGL.US) have also crossed the $4 trillion threshold. Alonso Munoz, Chief Investment Officer of Hamilton Capital Partners LLC, stated that investors generally believe AI is in the early stages of "leaping to a higher level"; during the market turmoil in April, he sold off some defensive sectors and increased his positions in AI-related companies, including Google.

Despite the booming AI market, policy-induced volatility continues to flash intermittently, with the core conflict centered around tariff threats.

Trump also salvaged Intel (INTC.US) by converting previously non-repayable federal grants into a 10% equity stake in the government; the U.S. also required U.S. Steel to cede some equity in exchange for transaction approval and acquired several small mining companies deemed critical to national security, thereby boosting the long-dormant mining sector. His public pressure on Federal Reserve policies and attempts to dismiss officials have also exacerbated market volatility.

Curnutt warned that this ongoing turbulence could weaken the market's "anti-fragility." "I worry that the market is not anti-fragile; you can't keep throwing various uncertainties at the market and expect it to always withstand them." Nevertheless, an 18% increase since the election is excellent by most standards, but it appears mediocre when placed in different contexts: the previous 12 months saw a 36% increase, and over the past year, the U.S. stock market ranked 54th globally, trailing behind countries like Canada, Japan, and Germany.

Figure 2

According to CFRA data, in the performance rankings for the first year following presidential elections over the past eighty years, this round ranks only eighth, behind Biden (first), Obama (fifth), and Clinton (second). Consumer stocks, in particular, have been weak—Chipotle Mexican Grill (CMG.US) previously saw its stock price plummet and warned of a decrease in customers; the consumer staples sector has declined over the past year, as tariffs are seen as eroding profit margins. The materials sector performed the worst, down 8%, as companies have had to pay higher costs for imported chemical raw materials from global partners, especially China.

However, the boom in AI has made "investing in U.S. stocks is unavoidable" a consensus. Conat noted that the scale, liquidity, multi-tiered investor participation, and growth prospects of the U.S. market continue to attract traders. There are also signs that the Trump trade turmoil is easing—his trip to Asia has yielded concessions from multiple countries, and since February, market concerns about China's AI competition have cooled, with corporate earnings continuing to support high valuations.

Michael Dickson, Head of Research and Product Development at Horizon Investment LLC, admitted, "I am more confident sitting here today than I was a year ago." A year ago, investors were unclear about how quickly AI infrastructure spending would increase and which parts of the supply chain would benefit; now they see greater upside potential, and despite other risks, they choose to continue holding.

However, trading in AI is not without risks, and bubble warnings are incessant; tariffs have had a mild impact so far, but could potentially hit U.S. consumers in the future, with low-end borrowers already starting to feel the pinch. If inflation rises again, it may prevent the Federal Reserve from cutting rates as significantly as the market expects.

"Policies take a long time to permeate the U.S. economy," pointed out Phipps, an analyst at Picton Mahoney.

Investors now face bilateral risks: on one hand, high valuations may correct, while on the other, there is fear of missing out on a new surge in AI stocks. "The risk of a comprehensive acceleration in the U.S. economy still exists."