Elections inevitably come with uncertainty. As candidates express differing visions for the direction the country will take, it’s only natural to be concerned about how the outcome could affect different aspects of life for you and your family – and that includes your finances and investments.
With the 2024 presidential campaign heating up, J.P. Morgan Wealth Management presented a webcast on May 9 about the possible financial impacts of the election. Moderator Shelby Anderson, Executive Director of J.P. Morgan Wealth Management Wealth Planning & Advice, spoke with Shawn Snyder, Executive Director and Global Investment Strategist at J.P. Morgan, on a range of topics – from the historical performance of the markets around election time to the potential tax and investment implications of this year’s contest.
The speakers suggested that, although elections can be stressful, you’ll probably be better off if you avoid any overreactions when it comes to your financial strategy. But even if election season is no reason to panic, it’s important to be aware of how the results at the ballot box could impact your wallet and your portfolio. Here are some highlights from the webcast to help you understand the possible financial repercussions of the 2024 election.
There may be some misconceptions about how financial markets react to presidential races. During the webcast, Snyder addressed the “frequent belief that if candidate so and so wins, the stock market is going to crash.” Despite the political passion behind the idea, this scenario has never really played out.
In fact, if you’ve heard that markets hate uncertainty, it may come as no surprise that stocks tend to rally after the election as uncertainty dissipates. When post-election downturns do hit the markets, it is often a symptom of the wider economic backdrop rather than an identifiable unfavorable market reaction to the newly elected president.
This is not to say that the winner of the race to the White House has zero influence over the performance of the stock market. Of course, presidential policies and decisions can shape the economy on many levels. For stock investors, election impact tends to be felt most at the sector level.
The general tendency is for financial stocks to outperform ahead of elections, with an expectation that whoever becomes president will try to bolster growth with new policy initiatives. Health care tends to do better under Democrats, while energy may be boosted under Republican leadership.
The 2024 campaign is a rare case in that the presumptive nominees from both major parties have been president before. This provides us with a historical reference of what happened in the markets when they took over the Oval Office.
Financials, industrials, and aerospace and defense stocks did well after Donald Trump won the election in 2016, while infrastructure stocks outperformed following Joe Biden’s victory in 2020. The post-election stock market gains were stronger in 2020, but that also coincided with positive vaccine news, demonstrating once again that factors beyond the election results can influence the markets.
While the familiar faces and our knowledge of what happened after the past two elections give us some hints about what we might expect this time around, there is no guarantee that the same developments will repeat in 2024.
Regardless of who wins the presidency this year, many provisions from the Tax Cuts and Jobs Act of 2017 are set to expire in 2025. This means lawmakers will have to decide on how to tackle changes to the tax code, striking a balance between even higher national debt and raising taxes. Expiration of the 2017 tax law would lead to higher taxes for most U.S. households.
Of course, the shape of the tax code moving forward depends not only on the outcome of the presidential election but also on congressional results. Party control over the House and the Senate remains uncertain, and it’s even possible that both chambers could switch hands following the 2024 election.
Republicans may support extending the tax cuts and propose major cuts to nondefense spending, while Democrats could favor tax hikes on corporations and wealthier individuals. However, given the likelihood of a divided government, both parties may have to compromise – perhaps leaving taxes slightly higher but with little deficit reduction.
Tariffs are another area where the major presidential candidates hold different opinions and viewpoints. Trump favors a 10% tariff on all goods imported into the U.S. and a 60% tariff on all imports from China, whereas Biden plans to reassess tariffs but recently announced his own tough stance on China, levying significant tariffs on imports from the country including steel, semiconductors and electric vehicles. Tariffs can affect economic growth and may benefit or harm particular sectors or companies.
The candidates also have distinct viewpoints on climate and energy policy. A second Trump administration would aim to increase energy production by drilling on federal land and extending pipelines, whereas Biden would aim to reduce emissions and increase energy efficiency.
Increased production and targeted deregulation under Trump could benefit some companies in the energy sector, but greater energy supply could also lead to lower prices, so the benefits for oil and gas stocks may not be as pronounced as some might expect. Meanwhile, if Biden remains in the White House, assets linked to renewable energy might find more support, but traditional oil and gas companies could come under pressure.
Although Trump and Biden have diverging priorities when it comes to geopolitical and domestic security views, defense spending is likely to remain robust under either candidate.
While there is a lot on the line in the upcoming election – including potential impacts on your money – the bottom line is that election outcomes have not driven market outcomes over the long term. There may be volatility leading up to Election Day, but there is no evidence of a clear, long-term impact on the markets or the economy.
With that in mind, it’s important to be aware of the election’s potential effects so that you can adjust your investing and financial strategies accordingly, but you shouldn’t let your stress or excitement about the political landscape interfere with your long-term financial strategy.
“Don’t let that emotion get the best of you,” Anderson advised during the webcast. “You know, make sure that you are creating a plan – that you are revisiting it often, or periodically, especially as life circumstances change – but not letting the emotion in what can seem like a very stressful time leading up to elections really drive our decision making.”
