The U.S. election is less than two weeks away, and investors around the world are wondering what will happen to the stock market if President Trump is re-elected or if Democratic presidential nominee Joe Biden wins the U.S. presidential election in November.
President Trump has said many times over the last number of months, that if he is not re-elected, the stock market will “disintegrate.” It gets worse. President Trump also said that Joe Biden, whom he called the “worst presidential candidate in history of presidential politics,” would “tax this country into a depression like 1929.”
How Will Stocks Do Under President Donald Trump or Joe Biden?
Admittedly, there is always some uncertainty on Wall Street in the lead up to a U.S. presidential election, since the stock market does not like uncertainty, and no one knows who will win. That said, Wall Street isn’t behaving as though a Joe Biden victory would be a bad thing.
2020 will go down in the history books as one of the strangest years on record. Despite COVID-19 shutting down much of the global economy and the world’s leading economies in a recession, the stock market continues to trade near record levels—although they have been trading sideways, looking for direction. The U.S. Presidential election should help release that log jam.
If Wall Street was afraid of a Democratic sweep, it should be reflected in the stock market. But we aren’t seeing this happen. That’s because it pretty difficult to prove that stocks take a drastic move up or down based on election campaign promises or an outcome.
The stock market did well during the Barack Obama years, climbing 16% on an annualized basis. But you wouldn’t give him sole credit for this happening. At the same time, Donald Trump cannot take responsibility for the 14.5% annualized return during his term in office. Nor can you blame Donald Trump for the February/March stock market crash. The stock market is much more complex than that.
Having said that, the stock market will most likely experience near term volatility depending on who wins the U.S. presidential election.
What Happened to Stocks after President Trump Won the 2016 Election?
If you recall, after Trump’s surprising 2016 victory, the S&P 500 went on a 14-month winning streak. Should President Trump win re-election, many believe the broader markets will continue to climb higher. But that remains in doubt. U.S. economic data is encouraging, but the country is still in a recession and the coronavirus pandemic is still out of control and a second wave could cripple the economy again.
What Could Happen to Stocks if Joe Biden Wins the U.S. Presidential Election?
Wall Street believes that the stock market will experience a short-term sell-off if Joe Biden wins the election. That’s because Biden’s planned changes to the tax code would increase the tax rate on capital gains and dividends for the highest-income Americans.
And historically, capital-gains tax hikes have been responsible for stock market selloffs. After the last capital-gains tax hike in 2013, the wealthiest one percent of U.S. households sold off one percent of their equity, worth around $100 billion today.
Today, the wealthiest one percent of Americans own a whopping 53% of all household stock. Suffice to say, their actions could move the markets.
In the end though, it’s not necessarily about who wins the White House. It’s about who takes control of Congress. If the Senate or House or even both are controlled by Republicans, it will be difficult for Biden to move forward with his agenda. If it’s a Democratic sweep though, look for a pull-back. You could also see a sell-off if either President Trump or Joe Biden contests the results.
Again, the stock market doesn’t like uncertainty. A Trump or Biden win and split Congress could also foster additional uncertainty.
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