US elections and implications for markets

US elections and implications for markets


Derek Hamilton

  • Managing Director, Economist – Ivy Equity Boutique
  • Read bio

President Biden and former President Trump have clinched their statuses as the presumptive presidential nominees for their respective political parties. At this point, we thought it would be helpful to focus on some important policy proposals for each candidate.

There seems to be complacency in markets around the election. Some observers may presume a positive environment for businesses if Trump were to win the upcoming election based on his prior policies of tax cuts and deregulation. At the same time, equity markets have done quite well over the course of President Biden’s tenure, even with the bear market of 2022. Up to this point, the total return for the S&P 500® Index has averaged roughly 12% annually under Biden*, while it averaged roughly 16% under Trump. We believe certain policies from both candidates could be somewhat market unfriendly by increasing the costs on businesses and consumers, growing the size of the public debt, or raising geopolitical uncertainty.

If Biden were to win reelection, we would flag the potential for higher taxes (including corporate, individual, capital gains, and stock buybacks), as well as potential increases in entitlement spending. If we see a second Trump term, we would monitor plans he has proposed to implement an across-the-board 10% trade tariff, with a 60% tariff on imports from China, and his desire to withhold military support for North Atlantic Treaty Organization (NATO) members spending less than 2% of gross domestic product (GDP) on defense.

Of course, much will depend on the election outcomes for the House of Representatives and the Senate. A divided government would likely make it difficult for either candidate to implement many of these objectives. Polls indicate that Republicans could retake the Senate, while the House could be more of a toss-up. We believe less will get done under a divided government, which will increasingly be important given that the Trump tax cuts expire at the end of 2025. Overall, we would encourage investors to watch these potential policy actions closely.

Market returns during recent presidential terms

S&P 500 Index, annualized percent total return >Market returns during recent presidential terms Chart

Note: Green bars represent republicans; blue bars represent democrats.

*S&P 500 Index annualized return for Biden term is through March 19, 2024.

Sources: Macrobond, S&P Global.

Chart is for illustrative purposes only.

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