Reports show little correlation between market performance and which party controls the White House.
As Americans go to the polls to choose their next president, senators, and representatives, many fearing economic volatility in the coming months are also wondering what to do with their savings.
Despite recent market gains, many Americans are worried about how the upcoming election will affect their savings and investments. However, financial analysts say that, regardless of who wins, the person in the Oval Office will likely have less of an impact on market performance than people think.
“Investors should stay the course and avoid market timing,” Tim Schwarzenberger, portfolio manager with Inspire Investing, told The Epoch Times. “The party in charge doesn’t make too much of a difference.”
An October
survey by the American Society of Pension Professionals and Actuaries (ASPPA) found that a majority of investors (55 percent) believed that the presidential and congressional elections will have a greater impact on their retirement plans and savings than the performance of the market.
Asked what will happen if the party they oppose gains more power, one-third of those polled said the economy will fall into a recession within a year; half said inflation and taxes will increase; and one-third said that economic policies will be put in place that will hurt them financially.
Americans can be forgiven for feeling this way, considering that recent inflation has wiped away more than 20 percent of the dollar’s value over the past four years. Many economists point to trillions of dollars in new federal spending and new regulations under the Biden–Harris administration as contributing factors in driving up prices.
But they also point to Federal Reserve policies, which are largely outside the control of the White House, that kept short-term interest rates near zero and expanded the money supply by 24 percent since 2020.
Whatever the election outcome, market analysts advise investors not to make rash decisions.
Election Results Have Had ‘Little Impact’ on Returns
An Oct. 29 investor
report from U.S. Bank states that “while public interest in the election is high, it helps to maintain a proper perspective regarding any potential impact on capital markets based on election cycle outcomes.”
This analysis assessed market data over the past 75 years and found that the medium-to-long-term effect of one party or the other occupying the White House or Congress was “minimal.”
Comparing the 3-month returns immediately following each election with average 3-month returns over the last 75 years, the bank found that no statistically significant relationship between market performance and which party was in control in Washington.
In addition, many stock analysts have predicted that oil and gas would prosper if Trump wins, due to his pledge to cut regulations in this sector, or that wind and solar energy would thrive under a Harris administration, due to the subsidies and regulations that have favored renewable energy over the past 4 years. But historical performance contradicts this view.
“Ironically, businesses tied to renewable energy saw their stocks perform better under the Trump administration, while stocks of oil companies and other traditional energy companies have performed better under the Biden administration,” Rob Haworth, senior investment strategy director for U.S. Bank Asset Management, stated in the report.
The ASPPA comes to a similar conclusion.
“Election seasons can be draining on all of us as we’re hit with relentless campaign ads and messaging, leading us to believe we need to prepare our investment portfolios for the worst,” Kevin Justice, senior vice president of the Nationwide Investment Management Group, stated in the ASPPA report. “However, it’s important to remember that election results in either party’s favor have historically had little impact on future investment returns.”
As an indication, the S&P 500 index
performed better under the Trump administration than the Biden administration, but both were very positive periods for stock market returns. Under the Trump administration, this market index posted a 16.3 percent annualized return, while during the Biden administration annual returns averaged 12.6 percent.
Returns under the Trump administration would likely have been higher if not for the COVID-19 pandemic that sent markets tumbling in 2020, but the S&P 500 had clawed back its losses and exceeded pre-pandemic levels by the time Biden took office in 2021, indicating that market gains over the past four years were not due solely to a low starting point.
Markets Looking Optimistic
Despite stark political differences among voters, stock markets are looking optimistic at this point. The S&P 500 stock index has delivered an approximate 20 percent return so far this year.“This is the best run-up ever into an election, the best rally we’ve had since 1997,” Jay Woods, chief global strategist at Freedom Capital Markets, told The Epoch Times.
“Earnings growth continues, not just in tech, but across the board,” Woods said. “We have 10 of 11 sectors up over 10 percent year-to-date; it’s a broad rally.”
Corporate earnings, however, are lagging. For the past 12 months to June,
average corporate earnings for the S&P 500 increased by about 9 percent, while the value of the index increased by more than 32 percent, suggesting that stocks are relatively expensive.
For long-term investors, however, attempting to “time” the market with frequent buying and selling is always difficult and often counterproductive. The S&P 500 has gained approximately 32 percent since 2020, Schwarzenberger points out, but if investors were out of the market on the best 100 days of that period, their returns would be a negative 26 percent.
Alternatives to Stocks
For more conservative investors, fixed income offers a less exciting but still viable alternative. Although Americans lost a significant portion of their savings to rising prices, and the subsequent interest rate hikes to tame inflation drove up the cost of buying a car or a home, the rate increases also ushered in a period when savers could earn a decent return—often more than 5 percent—on virtually risk-free investments like bank CDs, money market funds, and highly rated bonds.
This reversed decades in which the Fed held rates so low that investors had to seek riskier and more volatile returns from stocks, real estate, commodities, and crypto currencies to keep up with inflation. And although the Fed has begun cutting interest rates again, market analysts say that low-risk opportunities, though fewer, can still be found.
“Savers are still in a position to lock in yields on CDs that should handily outpace inflation for a multi-year period,” Greg McBride, chief financial analyst for Bankrate, told The Epoch Times. “But you have to seek out the most competitive offerings as this is the difference between staying ahead of inflation or falling behind.”
Investors who shop around can still earn yields of 4 to 5 percent on CDs and savings accounts, he said. In addition, yields on 10-year U.S. Treasury securities
rebounded from a low of 3.7 percent in September to 4.3 percent on Oct. 31. Consequently, fixed-income investments remain a viable option for those who want predictable returns.
“There is no need to chase yield,” McBride said. “The yield is still very much alive in cash and fixed income investments.”
This opportunity may be short-lived, however, with the Fed shifting its focus from price stability to employment. The 50-basis-point rate cut on Sept. 18 indicated the Fed was becoming less concerned about inflation and more concerned about employment risks. This view was bolstered by weak employment data on Nov. 1, which found that America had added a mere 12,000
jobs in October.
Investors who are seeking to hedge against rising inflation often look toward commodities, especially gold. However, these investments have also become expensive.
Over the past year, the
price of gold has gone up 38 percent and the price of silver has gone up 42 percent, according to Trading Economics.
Crypto currencies are another potential alternative to the dollar, but they have had a similar run-up over the past year. Bitcoin, the first and one of the most widely traded cryptocurrencies, has
doubled in price over the past year from $35,000 in November 2023 to about $70,000 today, according to Coindesk.
Policies That Could Make a Difference
Regarding specific industries, market watchers have predicted that a Trump presidency will be better for oil and gas companies because he would work to undo many of the new emissions regulations placed on utilities and car makers and open more federal land to drilling.
By contrast, a Harris administration will likely be better for wind and solar, because she would keep in place many of the policies that have hampered fossil fuel production, and would also continue the federal subsidies for renewables under the Inflation Reduction Act.
Conversely, Trump has pledged higher tariffs—up to 20 percent on most imports and as much as 60 percent on imports from China. This could raise costs for retail, carmakers, wind and solar energy, and other sectors that are dependent on Chinese imports. However, Trump’s aversion to regulation could bring costs down in other sectors.
“If Trump is elected, it could put a damper on some of the stocks in the semiconductor index,” Woods said. “Financials will do much better under Trump because lending and deals will be a focal point of his administration, whereas under Harris there’s more regulatory scrutiny.”
Many analysts say tax and regulatory policy are also key areas to watch as a new administration takes the reins.
“I do think that a recession is set to hit regardless of who wins on Tuesday,” Schwarzenberger said. But if Trump wins, “his policies—lower taxes, less regulation, more energy production—should help soften the downturn.”
By contrast, Harris has proposed
raising the corporate income tax rate from 21 to 28 percent, and increasing the long-term capital gains tax to 28 percent. If she is elected and succeeds in implementing these policies, it could reduce investment returns, both at the corporate level and for end investors.
End of Year Deadlines
In addition to investment decisions, financial advisers tell Americans to focus on end-of-year tax deadlines, and consider the tax bills that may come from profits they made off investments this year.
“People can get busy during the holidays and they can forget about these important deadlines for required savings, required gifting, and taxes,” Ryan Zabrowski, senior portfolio manager at Krilogy, told The Epoch Times.
“If you want to gift assets or make charitable contributions, or make contributions to your retirement accounts ... if there’s some portfolio activity that you could do to offset any tax liability, let’s make sure that we take advantage of all of the tax minimization strategies available to us,” he said.
