As the election approaches people tend to focus on the potential negative ramifications of the outcome. In 2016, economists predicted that a Trump victory would crash the stock market. Well, stocks went higher to end 2016 and kept rising throughout all of 2017. Leading up to the 2020 election, Trump said a Biden victory would crash the stock market. Stocks soared immediately after the election in 2020 and then posted very strong returns in 2021. The lesson might be that, no matter who wins, the stock market is just happy to move on from the election.
Market positives of Trump
Two big positives the market might focus on with a Trump victory is looser regulations and an investor friendly tax code. Trump’s campaign is on record saying he wants to roll back regulations across many industries, including Wall St. The implication could mean an increase in shareholder friendly dealmaking, which has been in a cold spell. In summary, we could see an uptick in IPOs and just generally more activity in the capital markets.
As it relates to taxes, the hallmark of Trump’s first term as President was his sweeping tax cuts in 2017. Many of the provisions of those 2017 tax cuts are set to expire in 2025. A Trump victory would ensure that he fights very hard to extend those tax cuts, if not make them permanent.
Market positives of Harris
A big positive the market might latch onto with a Harris Presidency is less about what she will do and more about what she won’t do: meddle in the Fed’s business. Harris, is quoted as saying, “I would never interfere in the decisions that the Fed makes.” This is in sharp contrast to Trump, who says he should, “have a say” on Fed policy if he is President.
In this respect, Harris represents less drama and greater predictability for the market. There is a precedent for the President getting involved with policy decisions of the Fed. Prior to the 1972 election, then President Richard Nixon pressured the Fed to lower interest rates for his own benefit. This approach contributed to the 1970s becoming one of the worst decades for economic growth and stock market performance in modern times.
From a policy perspective, Harris has already walked back and lowered proposed tax increases on corporations. In addition, she’s proposed a smaller than expected hike to the long-term capital gains tax rate. If Harris is already softening her stance on taxes during the campaign, the market may not be as pessimistic on her tax policy as one expects.
Maybe neither matter?
We’re not opining on if anything outlined above is good or bad policy. We simply believe, through our own experiences, that the stock market tends to find the positive of any policy. Or, perhaps the stock market is policy agnostic and presidential policies don’t matter nearly as much as the media would lead us to believe. But, “STOCK MARKET IGNORES ELECTION” wouldn’t make for a good headline.
Our bottom line is we expect the stock market to continue to find ways to do what it’s always done over the long term: move higher overall, with declines along the way.
Don’t want to miss anything?
Subscribe to our monthly newsletter for market insights.
