Trump versus Harris: Does it make a difference for the stock market?

As originally appeared in The Jerusalem Post on November 1, 2024.

“We will win an election when all the seats in the House and Senate and the chair behind the desk in the Oval Office and the whole bench of the Supreme Court are filled with people who wish they weren’t there.” -P. J. O’Rourke

We are just hours from the US presidential election. Thankfully the multi-year runup and hype to election day is almost over. I am frequently asked by clients who I support and who I think will win the contest. I learned a long time ago, to avoid revealing who I am voting for because it’s not at all worth losing business. In today’s supercharged political discourse, support for the ‘wrong’ client can get you cancelled. I am always amazed at why some people think that I have the ‘insider info’ and I know who will win. After all I look at the same polling data as everyone else. The real reason clients call is that they want to know if they should change their investments based on the results of the election.

Those of you who read my column even occasionally probably can anticipate my answer. But before I give it, let’s look at some data. According to Angelo Kourkafas, CFA, Investment Strategist for Edward Jones, writes, “Despite the temptation to tie market outcomes to election results, stocks have performed well under both Republican (R) and Democratic (D) presidents. The strongest returns occurred during the F. Roosevelt (D), Clinton (D), Eisenhower (R) and Reagan (R) presidencies.

Since 1930, there have been 23 U.S. presidential elections, with Democratic candidates winning 13 times and Republicans prevailing the remaining 10. The average annualized price return (excluding dividends) of the S&P 500 was 9.6% when a Democrat won and 5.7% when a Republican won. But when looking at longer-term horizons, such as 10-year post-election, results for both parties are similar, with the S&P 500 returning around 7%.”

He continues, “The same pattern is observed over the past two administrations. Despite the sizable chasm between Joe Biden’s and Donald Trump’s policies and both experiencing equity bear markets (one caused by the pandemic during the Trump presidency and the other by aggressive Fed tightening during the Biden presidency), stock market returns have been nearly identical. The S&P 500 has returned 14% per year after dividends under each president, highlighting that markets are neither biased toward one party nor exclusively driven by election outcomes.”

While the actual return numbers differ slightly from report to report, it’s clear that it doesn’t make much of a difference. What tends to matter more is whether one party controls both the presidency or whether you have split government. There the data is also clear, very much in favor of divided government. Returns are much higher with divided government. I would postulate the reason being that not too much can get done, which translates into the fact that politicians can’t screw things up too much. Just letting things be, is often the best outcome for corporate profits.

After explaining the data, the next question inevitably is “maybe we should invest in sectors that will do well under a specific president?”

Here again, there is data. Kourkafas writes, “While the economy and the broader equity market are harder to influence, certain sectors such as health care, traditional energy, clean energy, aerospace and defense tend to be more sensitive to the likelihood of a particular candidate winning the election. But you don’t have to go back many years to find that the “winners” and “losers” from an industry perspective are still guided by key macro forces. With Trump favoring traditional energy sources such as oil, natural gas and coal, and Biden supporting a transition to renewable energy to address climate change, the instinctive choice would have been to overweight the traditional energy sector after the 2016 election and renewables after the 2020 election. However, that strategy would have yielded poor results: During the Trump presidency, clean energy outperformed traditional energy by 43% per year. During the Biden presidency, traditional energy outperformed clean energy by 53% per year.”

There are all kinds of investment strategies revolving around elections. In the past I wrote about how a basket of the 30 publicly traded corporations that are the biggest donors to the winning candidate has outperformed the broader market by 6% in the 12 months post-election. While you can understand why that may be, what do you do for the following 3 years?

Investors are never satisfied. They always are looking for an edge to try and outperform the market. Unfortunately, time after time we see that trying to be ‘smart’ ends up being very costly. As I have said so many times, just trust the investing process. Understand your goals and needs, and then allocate your portfolio accordingly so that you can accomplish your goals. Timing the market may be fun, but statistically not the best way to achieve a secure financial future. The key? Buy high quality investments and hold them for the long term.

Happy voting.

The information contained in this article reflects the opinion of the author and not necessarily the opinion of Portfolio Resources Group, Inc. or its affiliates.

Aaron Katsman is the author of Retirement GPS: How to Navigate Your Way to A Secure Financial Future with Global Investing (McGraw-Hill), and is a licensed financial professional both in the United States and Israel, and helps people who open investment accounts in the United States. Securities are offered through Portfolio Resources Group, Inc. (www.prginc.net). Member FINRA, SIPC, MSRB, SIFMA, FSI. For more information, call (02) 624-0995 visit www.aaronkatsman.com or email aaron@lighthousecapital.co.il.