Well, here we go again! We had a rematch of the 2020 Presidential race, and then we didn’t. Now we have everyone scrambling to either reinvent themselves or figure out how to define their opponents (once they know who they may be). In our corner of the world, we are just trying to reassure everyone that their economic world is not going to end due to the election results. Let’s look at some facts.
In 2016, there was so much silliness about the election that on election night the market dropped precipitously, and then was back to even by the open once logic took hold. What is the history of markets in the short-term, intermediate term, and long-term after a Presidential election, and what can affect the economy and markets in policies?
Taken from an analysis done over the past 75 years, there are some patterns that have repeated themselves. Medium to long term financial performance has not been greatly impacted by election outcomes. However, their data does show that it is not the party who wins, but economic and inflation trends that typically affect market returns. They also found that, based on three month S&P 500 returns, one-party control of both houses of Congress and the Executive Branch has not had a statistically significant impact. In fact, the scenario of a split government in some combination seems to be the more significantly positive. Maybe that is because they keep each other’s excesses in check?
Practically speaking, here are issues to consider and which we feel could affect economic conditions and inflation going into the next year (hint, not a surprise):
- Individual and Corporate Tax Policies – Complicated, but higher taxes mean less money for people to spend (generally, the government is not an efficient or productive spender), and more people spending more earned money is generally good for the economy
- Congress and Executive Spending Priorities – must be productive use of funds or just adds to inflation
- Any changes made to social programs, including Social Security, Medicare and Medicaid, and Affordable Care Act (obviously all are spending related)
- REGULATION – I capitalized this on purpose as it is a “stealth tax”, just like inflation is. More regulation tends to hurt all business activity, but particularly small businesses which don’t have the army of legal, accounting, and compliance help on payroll. I notice that small caps have risen recently. Are they anticipating less regulation or is it just a market rotation?
- S. Immigration Policy – Cost to localities is massive currently
- Trade and Geopolitical Issues and Conflicts – These are a wild card that could change everything for good or ill.
We don’t have the space here to cover all of the other items out there. Each political party has their own ideas for these items; and yet the markets have historically not reacted too differently no matter who gets elected; but does react to the policies put into place.
Elections and personalities are interesting, but policies will tell us where the economy and markets are going!