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Presidential Elections and U.S. Equity Returns

All elections are important, but to many investors, the upcoming election feels particularly weighty. The policy ramifications of White House and congressional outcomes can seem unnerving, especially given the wide policy differences and, in some cases, dramatic policy proposals (particularly taxes). However, history suggested election results should not be the primary driver of investment decisions. This is particularly true now, where COVID and the related fiscal and monetary response are arguably more important than potential.

On a short-term basis, politics have the power to move markets and create stock market volatility; however, the relationship between politics and financial markets is not so clear cut. While there may be conventional wisdom in how each party’s policies will affect the economy, politics play only a small role in the direction of the economy and markets. Political checks and balances mitigate the impact of radical, transformational proposals. Plus, the impact of changes tends to evolve over time (often into the next administration).

Below are a handful of graphs and statistics to outline the historical data the election has had (or not had) on the U.S. economy:


Chart Source: Invesco: 2020 U.S. Election – 10 Truths No Matter Who Wins.

Source: Bloomberg, L.P., 6/30/20. See index definitions on page 13. An investment cannot be made in an index. Past performance does not guarantee future results.


Chart Source: Invesco: 2020 U.S. Election – 10 Truths No Matter Who Wins.

Sources: Haver, Invesco, 6/30/20. Note: President Trump stock market performance data from 1/20/17-6/30/20, real GDP data from 12/31/2016 to 3/31/2020 as GDP is reported with a lag. Stock market performance is defined by the total return of the S&P 500 Index. Index definitions can be found on page 13. Past performance does not guarantee future results.

  • Neither party can consistently be credited with superior economic or financial market performance
  • The S&P 500 Index delivered an average annual return of approximately 11 percent over the past 75 years, through both Democratic and Republican administrations. The U.S economy also expanded around 3.0 percent during that period.
  • The stock market’s return was negative for a presidential administration only when the country was in a financial crisis (2008) or experiencing a stagflationary spiral (1973).

Comparing the economic plans of Joe Biden and Donald Trump

Infrastructure

  • Both Trump and Biden want infrastructure bills worth more than $1 trillion
  • Republicans do not want infrastructure spending in coronavirus stimulus bills, Democrats do
  • Biden’s plan focuses on climate change as well

Taxes

  • Trump wants to extend 2017 tax overhaul for individuals
  • Biden will rollback tax cuts, apply payroll tax to those making over $400,000
  • 75% of Biden’s tax hike will be borne by top 1%

Healthcare

  • Trump budget proposes spending cuts to Medicare, Medicaid
  • Biden opposed to Medicare for All, wants to create public option
  • Biden wants to lower Medicare eligibility to 60

Trade

  • Trump has not dialed back China trade war rhetoric yet
  • U.S. trade deficit fell for the first time in six years in 2019
  • Biden wants a coalition with international allies to pressure China

Jobs & Wages

  • Both candidates want to create jobs through infrastructure investments
  • Trump likely to continue “Buy American, Hire American” immigration agenda
  • Biden wants to raise the minimum wage to $15, Trump does not

Student Debt

  • Trump wants to scrap loan subsidies and forgiveness for public service
  • Trump wants to create a single income repayment program
  • Biden proposes forgiving student debt for poorer grads

Source: Invesco: Investopedia – Comparing the Economic Plans of Trump and Biden. October 23rd, 2020.


For more information, please contact HighMark Wealth Management.

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