How the Election Might Impact the Markets

It’s hard to think of an event that is more likely to trigger emotional investment reactions than a national election.  Depending on where you come from, each election means the economy is on the verge of a great boom or the world is coming to an end.

The traditional message that financial advisors send to their clients after a Presidential election is to reassure them that the markets have not (at least since the New Deal) been much affected by who occupies the White House—one way or the other.  There is tons of research to back this up; people who are giddy about an election shouldn’t assume that the markets will feel the same way, and the same goes for voters who are depressed.

This election may be more complicated, for a variety of reasons.  It’s hard to know if some of the proposals that seem to have been thrown out off-the-cuff during campaign speeches are actually part of the incoming Presidential agenda.  No rational economist will tell you that imposing tariffs at historically high rates will benefit the U.S. economy, and using tariffs to pay off the national debt is not possible for a variety of reasons.  (One of the simplest is that Treasury bonds are not callable.)  

On the other hand, an agenda of cutting regulations could give some industries a (probably temporary) sugar high, and tax cuts could do something similar to consumer spending.  

On another hand (do you have three?) a combination of tax cuts and tariffs would likely raise the inflation rate, and there’s a possibility that dramatic tax cuts would explode the national debt.  High tariffs would negatively impact companies which have complex global supply chains (like computer manufacturers and the auto industry) while leaving others untouched.

Add in the prospect of mass deportations of the workers that our agriculture industry has come to depend on, and you have an added layer of uncertainty.

But the truth is, we don’t know much about the economic policy agenda for the next four years—which, in itself, is a bit unusual.  And, of course, there are a variety of other unknowables about the future of the economy and how geopolitical events will unfold around the world.  The recent Presidential election has added one more variable to our never-ending uncertainty about the future, which generally means our best approach is to sit tight and see how events unfold.  

Sources:

https://www.cnbc.com/2024/11/11/what-a-new-trump-administration-could-mean-for-your-money-advisors-say.html

https://www.goldmansachs.com/insights/articles/how-trumps-election-is-forecast-to-affect-us-stocks