Unless you’ve been living under a rock—and believe us, we’d understand if you chose to do so—you’re aware that we’re just days away from a presidential election. As tense as it is leading up to the big day in November, the days after the election are what we’re really anticipating. Historically, presidential elections have always carried significant economic implications, influencing everything from stock market performance to consumer confidence and business investment decisions. While the full extent of these effects is often unpredictable, examining past trends and key economic factors can provide insights into what we might expect this election season, and what you should—and shouldn’t—consider when making financial decisions.
The Historical Impact of Elections on the Economy
No question about it, presidential elections create a degree of uncertainty in the economy. And uncertainty is something Wall Street and business leaders don’t particularly care for. This uncertainty often manifests in stock market volatility, consumer hesitation, and a slowdown in business investments. The very nature of elections—with the potential for new policies, regulations, and economic strategies—typically leads businesses and consumers to adopt a wait-and-see approach when it comes to making major financial decisions. Sort of like the economy holds its breath for a short time.
Stock Market Performance
One of the most discussed topics in election years is the stock market. Historically, the market tends to experience increased volatility in the months leading up to an election. Historic analysis of the S&P 500 Index during the 23 election years from 1928-2016 reveals some interesting facts:
- 19 of those 23 years (83%) yielded positive performance
- Election year returns averaged 11.28% overall
- In years when a Republican was elected, returns averaged 15.3%
- In years when a Democrat was elected, returns averaged 7.6%
- The highest returns were 1928 (Herbert Hoover) at 43.6% (followed by the Black Tuesday stock market less than a year later and the start of the Great Depression).
- The lowest returns were in 2008 (Barak Obama) at -37.0% (precipitated by the sub-prime mortgage crisis and subsequent global recession).
Despite volatility leading up to election day, stock market performance tends to stabilize following the election, as uncertainty dissipates and markets adjust to the new political landscape. A “post-election bounce” is a common phenomenon, regardless of which party wins. In 2016, despite initial jitters following Donald Trump’s victory, the Dow Jones Industrial Average surged by nearly 1,000 points in the weeks following the election, reflecting market confidence in expected pro-business policies.
Economic Policy Changes
A change in leadership can bring with it a shift in economic policies, which can significantly impact both consumers and businesses. History shows that elections resulting in party changes tend to lead to more substantial economic shifts. For example, in 1980, when Ronald Reagan was elected president, his administration’s policies shifted dramatically toward deregulation and tax cuts, sparking a period of significant economic growth in the 1980s.
Similarly, in 2008, Barack Obama’s election amidst the financial crisis led to increased government intervention in the economy, with policies like the American Recovery and Reinvestment Act designed to stimulate economic growth.
For business owners, understanding the potential policy changes tied to each candidate’s platform is essential in formulating post-election contingencies for investment and growth plans. Any proposed changes in taxation, regulation and trade policies could significantly impact revenue, profitability and availability of growth capital.
What to Anticipate This Time
As we look ahead to November, several key economic issues are likely to take center stage, including taxation, inflation control, and labor market policies. Business owners and consumers should consider the following possible outcomes and their implications:
- Taxation
Changes in tax policy can have significant implications for business and consumer spending economic growth. Here are some highlights proposed by each candidate:Harris:
- She has proposed to increase the federal incentive for small business startup expenses to $50,000—deductions for expenses like market research, advertising, employee training, and legal fees.
- Harris wants to expand the Child Tax Credit to pandemic levels of $3,600 per child below age six and $3,000 for older children.
- Harris has separately proposed a $6,000 tax credit for families with newborns, citing extra expenses that add up during the first year of a child’s life.
- The VP has also proposed a number of tax credits designed to address housing affordability. Notable among these is a $10,000 tax credit for first-time home buyers, with additional down payment assistance of up to $25,000 for eligible first-time home buyers.
- Harris plans to fund these cuts largely through shifting tax burdens to corporations, the top 3% of American households and those with net worths exceeding $100 million.
Trump:
- Donald Trump’s tax proposals would essentially build on his previous tax cuts from the Tax Cuts and Jobs Act of 2017. He has also explored further reduction of individual income tax rates, and his running mate, Senator JD Vance has suggested expanding the child tax credit to $5,000.
- Trump has proposed increasing tariffs to pay for these and other corporate tax breaks he may initiate. He has floated the idea of a 10-20% tariff on all imports. Many economists predict such a spike would ultimately lead to higher consumer prices, at a time when the nation has already been struggling to bring down inflation rates.
- Trump has also proposed eliminating taxation of Social Security benefits and gratuities for service workers.
- Inflation and Interest Rates
Speaking of higher prices, inflation has been a significant concern for many Americans in recent years, and the next president’s policies on controlling inflation will be closely scrutinized. The Federal Reserve’s approach to interest rates—whether hawkish or dovish—will likely be influenced by the next administration’s economic philosophy. Business owners, especially those with debt or expansion plans, will need to keep a close eye on monetary policy and its effect on interest rates and adjust their strategies accordingly. - Labor Market and Employment Policies
Labor policies are another area where elections bring significant changes. Issues such as minimum wage policy, healthcare mandates and worker safety regulations can all impact labor costs and business operations. For consumers, these policies can influence household income and purchasing power. Business owners should prepare for the possibility of increased labor costs, particularly if there is a push for higher wages or expanded worker benefits.
Preparing for Uncertainty
The biggest challenge for both consumers and business owners in an election year is navigating the uncertainty that accompanies it. Here are some basic factors to consider:
- Stay Informed: Understanding each candidate’s platform and how their policies may impact your industry or personal financial situation is important.
- Manage Investments Wisely: For investors, election-related market volatility is normal. Avoid making rash decisions based solely on election outcomes and consider long-term strategies that account for market fluctuations.
- Plan for Policy Changes: Business owners should have contingency plans in place to adapt to possible shifts in taxation, regulation, and labor policies.
- Hold Off on Major Investments: It may be a good idea to consider delaying significant business investments until after the election when more clarity is available regarding economic policy direction.
Take a Deep Breath
Presidential elections are a pivotal moment for the economy, and while the exact impact can be difficult to predict, historical trends offer valuable insights. Just remember, elections bring change, but they also present opportunities. Whether you’re a consumer or a business owner, preparing for the economic implications of the election by staying informed and making contingency plans can put you a step ahead and ready to approach the post-election landscape with confidence and a clear head.