Election 2024: Politics and your portfolio

VaselineOctober 4, 2024

0 3 minutes read

Election 2024: Politics and your portfolio

The US presidential election has gripped the nation. Should it rule your portfolio too? The short answer: No.

Financial fundamentals, such as the direction of interest rates and corporate earnings, hold more sway, especially over the long term. But it doesn’t hurt to be aware of what history tells us about elections and financial markets, and to think about how potential policy moves could affect your investments.

Predicting election results is more art than science, and at the time of writing, we still don’t know who will move into the White House in January. A clue will come from the market itself. If the S&P 500 moves higher in the three months leading up to an election, the incumbent tends to win; the opposite is true when the reference value is low. This simple indicator has been targeted in 20 of the last 24 elections, according to LPL Financial.

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Best case scenarios for your portfolio

At the end of the summer, the race for president was a battle between Donald Trump and Kamala Harris; the odds were in favor of Republican control of the Senate and a Democratic House of Representatives.

Going back to 1945, the best-case scenario for stocks was a Democratic president and a divided Congress, says Sam Stovall, chief investment strategist at CFRA Research. This setup resulted in average calendar year price gains for the S&P 500 of 16%, compared to an average annual gain of 9.2% over the entire period.

The second best scenario was a Democratic president and a unified Republican Congress with average gains of 13%, followed by a Republican expansion with average gains of 12.9%. This time, “it’s likely a deadlock,” write strategists at BofA Global Research. “Historically, legislative stagnation has favored stock market equanimity,” they add.

How policy moves can affect portfolios

Of the big themes investors are watching, including global trade and immigration, “the market is most concerned about changes in the corporate tax rate,” says Shannon Saccocia, chief investment officer of Neuberger Berman Private Wealth. Harris talked about raising the rate to 28% from 21%; Trump has floated lowering it to 15% for American manufacturers.

More: A look at Donald Trump’s tax plans ahead of the election
More: A look at Kamala Harris’ tax plans ahead of the election

A change would affect small stocks the most, Saccocia says. Unlike giant multinationals with global sources of income and access to a range of deductions, “small, country-focused companies pay for the whole trip. For them, the corporate tax leverage is really important.”

Sectorally, the Republican policy platform favors energy, financials, industrials and materials, according to investment strategists from BCA Research. Harris’ agenda would benefit consumer discretionary and industrial action, but put regulatory pressure on finance and technology, though BCA believes a divided or opposed Congress would constrain a Democratic wish list.

More: 5 stocks to buy for a Harris presidency
More: 5 stocks to buy for a Trump presidency

Even in a contentious election season, there are areas of agreement. “Bipartisan themes around infrastructure and growing U.S. manufacturing should benefit ‘old economy’ sectors like industrials, materials and energy,” according to BofA.

Ahead of the election, expect more volatility. This advocates a short-term tilt toward defensive sectors such as health care and utilities. And keep politics in perspective as just one of many factors that could affect your investment strategy.

Note: This article first appeared in Kiplinger Personal Finance Magazine, a monthly, trusted source of advice and guidance. Subscribe to help you earn more money and keep more money you earn Here.

VaselineOctober 4, 2024

0 3 minutes read

Vaseline

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