As we approach the final weeks before the general election, I wanted to take a moment to address some of the recurring questions and concerns that I’ve been hearing from clients and investors. Below, I’ve outlined insights on three key topics that frequently arise in our conversations.
Is Harris or Trump better for the stock market?
This is always a tricky one, often fraught with strong political undertones. Fortunately, the data and research suggest a consistent conclusion: it doesn’t really matter. Historical trends show that market returns tend to be quite similar regardless of which president or party is in power. While individual policies may create short-term fluctuations, the broader market often remains resilient and driven by fundamental economic factors rather than political leadership alone.
Source: Strategas Research Partners, as of November 5, 2023.
At the end of the day, earnings, cash flows, and valuations drive the performance of financial assets. While policy matters, its investment impact is hard to predict and often over estimated.
Is the market going to sell off if Harris / Trump is elected? Should we move to the sidelines and wait to see what happens?
In almost all president elections since 1980, markets moved higher after election day. Notable exceptions occurred in the 2000s, when the tech bubble bursting continued to weigh on markets and the economy headed into recession in 2001, and in 2008, when the onset of the Financial Crisis weighed heavily on markets into 2009.
Source: Standard & Poor’s, FactSet, J.P. Morgan Asset Management. *Average and median quarterly returns for the S&P 500 across the 22 presidential election years from 1936 through 2020. Data are as of September 30, 2024.
The simple fact is that financial markets do not like uncertainty. Once the election is complete, it removes a significant amount of ambiguity and allows investors to reassess their strategies based on a clearer political landscape.
However, it is reasonable to anticipate volatility—both upward and downward—in the days immediately following the election. The combination of a frothy, fully valued equity market and a highly polarized, emotional electorate could lead to intense reactions as investors make emotionally driven trades and/or rebalance in and out of politically driven positions.
It’s important to remember that equity investments are designed to address future spending needs that are, at minimum, 7 to 10 years away. Therefore, any short-term volatility should be viewed in context; while it may cause momentary concern, it should not derail any long-term investment strategies.
Harris / Trump said they are going to ______ if elected. Should we be worried?
To be honest, my confidence in any politician delivering on a campaign promise is about as high as my confidence in my boys’ promise to clean their rooms—let’s just say, it’s not high!
That said, both candidates have proposed a variety of policies that could be impactful to the market, economy, and our clients’ financial plans. It continues to appear likely that we’ll see some form of divided government, which would potentially limit either candidate’s ability to fulfill their more ambitious campaign promises, particularly those deemed more extreme.
As always, we’ll continue to monitor any legislative proposals emerging from Washington and their potential impact on our clients.
One item that I am watching closely is the elections impact on the Tax Cuts and Jobs Act (TCJA) of 2017. Provisions in this act are scheduled to begin sunsetting in 2025, and regardless of who wins, the new administration will need to address this issue. Key provisions at stake include potential changes to the standard deduction, individual income tax rates, small business deductions, alternative minimum tax (AMT) exemptions and estate tax thresholds. The implication of these changes could significantly affect taxpayers and business owners alike. Clients can expect to hear more from us on the TCJA as we move into 2025.
Summary
It's essential to remember that while political outcomes can influence market sentiment, historical data suggests that long-term investment fundamentals remain resilient regardless of which party is in power. Although we may experience short-term volatility following the election, the fundamental drivers of market performance—such as earnings, cash flows, and valuations—tend to have a far more significant impact.
If you have any questions or would like to discuss these topics further, please don’t hesitate to reach out.
-Adam
All information contained herein is derived from sources deemed to be reliable but cannot be guaranteed. All economic and performance data is historical and not indicative of future results. All views/opinions expressed in this newsletter are solely those of the author and do not reflect the views/opinions held by Advisory Services Network, LLC.
Asset allocation and diversification do not assure or guarantee better performance and cannot eliminate the risk of investment loss. As with any investment strategy, there is the possibility of profitability as well as loss.
Rebalancing investing involves risk including loss of principal. No investment strategy, such as rebalancing, can guarantee a profit or protect against loss. Rebalancing investments may cause investors to incur transaction costs and, when rebalancing a non-retirement account, taxable events will be created that may increase your tax liability.