Does it matter to investors who wins the US election?

I read somewhere that lower corporate taxes (in the USA) were responsible for about 10 per cent of share price improvement during the recent bull market. That of course doesn’t apply to Canada’s absolutely flat returns on the back of less accommodation in personal and corporate taxes since Trudeau’s win in 2015. Canada’s political problems aside, the US stock market has certainly shown how a friendly Fed and a friendly business environment helps markets. But what happens if Trump loses the election in November of this year?

With a growing likelihood the Democrats win the presidency and Congress,  Biden might be expected to reverse at least some of the Trump tax cuts to fill some of the massive budgetary hole. This in turn might likely end up reducing corporate profits. And that certainly wont help already stretched market valuations. That said, not all Democrats are socialist spend n’ tax types. Kennedy lowered tax rates across the board during his tenure. So, here’s hoping…

Pre-election market patterns

Interestingly, the market has a history of selling off before the election is decided if the outlook looks like a Democrat win. Here’s an interesting chart from sentimentrader:

Sentimentrader notes: “During the summer months leading up to the election, the Dow often struggled if the win turned over to a Democrat. Over the next 1-2 months, roughly July-August, any upside was limited.  While the Dow ended up doing very well in 1932,  all other occasions saw negative returns over the next six months. Based on these suggestions and the recent behavior of markets in correlation to President Trump’s re-election chances, bulls should hope his probabilities improve.”

 

Post-election

There are plenty of charts and statistics out there to show that AFTER an election,  a win by the Dem’s will be better for stock market returns. I’ve posted a chart below featuring the averages under various presidents–one of several you can find on Google images if you type in a query on the subject.

More significant to the current environment, JP Morgan released some data suggesting that “A Biden victory with a Republican-controlled Senate would boost markets by keeping Trump’s tax regime in place while eliminating his “randomly-timed disruptions from foreign/trade policy”.

Stock investors who are looking for gains into the winter will want Trump to pick it up a bit from now until the election. Thereafter,  if he loses the presidency to Biden but maintains a Republican controlled Senate, the odds are good for stocks to continue doing well in an environment of accommodation in tax policies while satisfying some market concerns for forward looking investors.

A Trump or Biden win with a Democrat-controlled Senate would be the worst case scenario for markets, according to all that I’ve read. So there you have it. Now roll them bones, as Rush once sang…and lets see how it plays out.

quote-teal

7 Comments

  • Hi Keith,

    Kindly can you give me 2 of DOW 30 ETF hedged to Canadian dollar, I am aware about ZDJ but it is new one, I really appreciated your comments.

    Reply
    • Dont know of any–best you search the internet, any out there will be seen via a search.

      Reply
  • Nixon and W. negative returns coincided with two wars, Vietnam and Iraq/Afghanistan, respectively. Truman’s presidency ended during the Korean War, but the start of his presidency occurred at the end of WWII when the market was still reeling from the Great Depression as evidenced by its significantly lower value than September 1929 value. Therefore, the market’s positive CAGR during Truman’s terms was mainly due to starting at a low depression era level. My takeaway is that I’m less concerned about which party controls the Congress or Presidency than if the U.S. were to enter some kind of war. Unfortunately, history shows trade wars lead to killing wars, and wars destroy future stock market returns.

    Reply
  • So according to your chart of the SP500 Compound Growth rates the Dem’s don’t do any worse than the Republicans. I wish the media types would stop their ballyhoo-ing about how awful the Dem’s are for business. Now Keith the great chart technician, how about a similar comparison to the income growth of the top 1% during each of the periods of Dem president and Republican presidents.

    Reply
    • Lana–I note that when in power, the Dem’s usually see a stronger return than the republicans–so I believe you misinterpreted my blog. What the facts do show is that leading into an election, markets sell off if the Dems are going to win (aka right now). Further, as I note in the blog–its a best case for the Dems to hold the presidency (NOT the Republicans) but ideal if the Republicans to hold the Senate.
      So, I for one hope for a Biden win, but a Republican Senate. What worries me is it may be a Dem win accross the board. But, that doenst automatically imply bad things to come either. Its just a less desirable setup.
      I pay little attention to income gaps–I am looking at stock patterns. But, I did blog on the subject once…Read my blog last Xmas where I note that Dem’s and Liberals in Canada ARE the 1%…
      https://www.valuetrend.ca/the-great-deception/

      Reply
  • Biden is a moderate in my opinion. Compared to Trump’s zooey behavior, I’d think investors would welcome someone who is steady. Also, interest rates are going nowhere except down (it’s now worse than in the start of this in 2008). So even if/when corporate profits go down whether people just aren’t buying or taxation is upped or both, so long as a moderate president and congress alter a bit here a bit there, seems investors would feel more certain, not less.

    Also, in my opinion, Biden would mean a coherent response to Covid 19. Doesn’t that create more certainty?

    Reply
    • Hi Mary
      yes, i think a Biden win is going to create more certainty and calm everyone down. To your point, he is a moderate, a bit like Obama in that way—-quite different from Sanders or our own Liberals (who in the “good old days” used to be moderate, now just a branch of the NDP) – your point about moderate congress is the issue, methinks…Sanders promised to support Biden–there will be payback required for the support, and that may not be good for business
      We will see.

      Reply

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