So have you heard that we are having a presidential election this year? For all those underneath-rock-residents we are having a presidential election this year (this week!) which will mark America’s 59th contest for control of the highest office in the land. For everyone there is a lot riding on this particular contest as the country seems to be fairly divided on just about every issue. Despite the political differences we do typically unite under one aspect…. MONEY! I would not doubt that we could poll most Americans to agree on these three desires:
We want the US economy to do well
We want our retirement and investment accounts to grow
We want markets to steadily rise higher
If you do not want those three things, then I would start to question your common sense! For those who are relying on investments to help build their financial futures then it would be clear that we want whoever comes to power to help these three things happen. Every four years we go through a number of hold your breath situations because of politics and the rhetoric is only getting more intense with every election cycle. This reality causes great concern in people and makes them question the viability of markets and their accounts to hold up to changes in government. One of the best ways to gain perspective on markets and how elections affect them is to review the history of those 58 previous contests and see how they impact the stock market in the short and long term. SHORT TERM VOLATILITY AND LONG-TERM STABILITY The historical trend seems to support the notion that there is some short-term volatility involved in the outcome of elections in November. Historical statistics surrounding election day show that markets tend to do better in an election year when an incumbent Republican wins and do the poorest when that incumbent Republican loses. Ironically, the market tends to do the best in the year after the election when a Republican incumbent loses. Short term investor psychology may have it’s hand in these trends as Republicans have generally been seen as more favorable to the economy and when they lose there is overreaction to the downside which then gets corrected the following year under a new Democratic president.
HOW FAR APART ARE THEY REALLY?
Again, the rhetoric around elections has dialed up our anxiety and it creates fear in our futures when it comes to our money. When we dissect where the candidates stand on economic issues, we do see some differences, but we don’t see massive change in policy. Economically, the Trump era has been defined by tax cuts and protective tariffs on foreign countries, mainly China. While tax cuts, especially the corporate ones, have been good for markets, the tariff’s have upset global trade and created uncertainty in markets. While we do not know exactly what platform a Joe Biden presidency will bring to the economy we do know some of what he intends to do. Here is a bit of a comparison on where the candidates stand:
Global Trade: Biden will likely be less aggressive with foreign countries and has mentioned strengthening economic ties with allies but will likely be less aggressive with China.
Taxes: Biden has said he will raise taxes on households making over $400,000 of income. He plans on rolling back the corporate tax cuts to a lower level than Trump.
Healthcare: Biden has not endorsed the Democratic parties “Medicare for All” platform for healthcare and will likely be a supporter of expanding the power of the ACA or Affordable Care Act (Obamacare) which was created when he was Vice President under Barak Obama.
Pandemic Economies: Biden has said he will be open to shutting down the economy depending on the health data surrounding the Pandemic.
Global Trade: Trump is more of a protectionist, one who favors US manufacturing and US production and has been tough on global trading partners, namely China.
Taxes: Trump lowered federal tax brackets for every household and lowered them for corporations.
Healthcare: Trump has not repealed the controversial Obamacare but has severely cut it back with the elimination of the individual mandate which was a tax on those people who did not have some sort of health insurance plan.
Pandemic Economies: Trump has been aggressive in supporting the reopening of state economies despite not having a vaccine available.
It seems to be fairly clear that Donald Trump has an edge on Joe Biden when it comes to his prioritization of the economy over other issues which is in line historically with the Republican platform. The economy going in to the 2020 pandemic was quite strong with unemployment down around the 3% level. The challenge for Trump will be to convince voters he can replicate the success he had in the first three years until the Pandemic and ensuing shutdowns have since hurt our economy quite a bit. Despite the major differences between these two candidates and platforms there is no systemic change ahead as Democrats rejected a much more challenging candidate in Bernie Sanders back in the Spring. The economic fear to our capitalist structure would have been challenged under a Sanders administration.
So what does all this tell us? I believe it helps us see that elections have happened every four years like clockwork and they are always unknown as 2016 showed us even shocking results can still happen. Markets have risen under both types of congresses and both types of presidents which underscores how incredibly remarkable the foundation is under our US Constitution…. Thank you, Jefferson, Hamilton, Madison, and company.
It will be increasingly tempting to want to change course on our investments due to the political climate and election season we are in but to do so may be more harmful than we know.
Let's together refrain from betting against America even when the politicians make us want to.
All the statistical and historical information for this article came from our friends at Clark Capital, one of our preferred tactical managers for client portfolio’s. If the original article is desired just let me know and I can forward it to you.