Which Presidential Candidate Will Be Better for the Stock Market?

July 3, 2024

By Robert Wiedemer

With all the discussions about the Presidential election post-debate, I thought it would be a good time for me to weigh in with my thoughts on how the election will affect the stock market.

Surprisingly, I Don’t See “Election Anxiety” Affecting the Market

First of all, I don’t think that “election anxiety” will have much negative effect on the market. The reality is that the stock market has done pretty well for the last 18 months under the current president and that will likely be the same if he wins. If Donald Trump wins, I don’t that will hurt the market despite the negative comments by some economists that Trump will fuel higher inflation.

My opinion and conventional wisdom say that both candidates will run high deficits of over $2 billion annually. Since those deficits are a very important part of our short term economic growth, the fact that few people think there will be much difference also means that the market will not be too worried about the outcome.

The Market Will Do Well if Either Candidate Wins, but It Will Do Better Under One of the Candidates for the Following Reasons:

As to which Presidential candidate will be better for the market, I think it is pretty clearly Donald Trump. That does not mean that the stock would do poorly under Biden, I just think it will do better under Trump for the following reasons:

1. Wall Street will be excited that Trump is talking about cutting corporate taxes. Although the cut he is discussing is minor, from 21% to 20%, it is quite possible that with a Republican House and Senate, which I think is likely, a cut to 15% could happen. Also, even if the cut is small, Wall Street will be happier with Trump who only talks about tax cuts and will certainly vote to continue his earlier tax cuts vs. Biden who is looking at some tax increases.

2. Trump has shown a great willingness in his past term in office to strongly push the Fed to lower interest rates. I don’t think his attitude in that regard has changed a bit. Real estate guys tend to like lower rates.

Also, he has less concern about the independence of the Fed than Biden. If he doesn’t like what the Fed says about higher rates, he makes it very clear. Plus, in two years, he will certainly replace current Fed chair Jerome Powell with a Fed Chairman who shares his views on interest rates.

3. The market’s past experience with Trump is good. After Trump won the election in 2016, the stock market had a terrific run. The same could be true after this election. I can’t say if the run will be as good as in 2016-17 but I think it is quite possible that the market will anticipate a similar bullish mood towards the market especially given it is already in a pretty bullish mood.

4. Although there are many high-profile Democrats on the Street as well as many less well known Democrats, Wall Street tends to be more Republican. Hence, it follows that, at least in the initial aftermath of the election, Wall Street will react more favorably to a Republican than a Democrat.

That feeling may well continue past the first few months after the election since people’s outlook on the economy often depends on their politics. If a Republican is President and Republicans control both the House and the Senate, Republicans and many investors are much more likely to view the economic outlook as very good. This is especially true since this Republican president is very favorable towards economic stimulus measures such as big deficits and low interest rates.

In his last term in office the deficit almost doubled in 3 years from $587 billion in FY 2016 to almost $1 trillion in FY 2019 pre-Covid. I would not expect such an increase in his second term, but I would expect the deficit to grow, as it did before, and not decline. It doesn’t hurt that Congress always seems more than willing to increase its borrowing so a future President Trump would have to push hard to actually get a decrease in the deficit.

I mentioned that I think the House and Senate will go Republican. That’s mostly due to the Democrats being unable to take many seats in the House, which they don’t control, and they will likely lose seats in the Senate, which they currently control. The Democrats have already effectively lost one seat in West Virginia so if Trump wins, Republicans will have control of the Senate because Trump’s Vice President will have the deciding vote.

Even if Trump does not win, I think there is a good chance the Democrats will lose either or both the Montana or Ohio Senate elections. They could lose other seats as well and are unlikely to gain any seats in this round of Senate elections.

As for who might win the Presidential election, I really don’t know. Clearly, the momentum favors Trump, but I have learned long ago not to predict elections too early in the process and learned even longer ago not to predict Presidential elections. It’s simply not my skillset.

Finally, I should add that this is not an endorsement of Donald Trump or his economic policies. Nor is it an endorsement of Biden’s policies. Long term, I think both of the candidate’s policies regarding deficit spending will cause major problems. All I am trying to do now is give you a hopefully unbiased opinion as to how the stock market will be affected depending on who wins the election and why.

Have a happy Fourth of July!!!