The first debate is over, and President Biden’s faltering performance prompted much hand-wringing among Democrats. How likely is it that former President Donald J. Trump will win the November election?
As a citizen and as a voter, I care about this question. But as an investor, I’m indifferent — or at least I’m trying to be.
Fundamentally, the markets don’t care who wins. Stocks rose early Friday after a favorable inflation report only to give up a little ground later, while the odds of another Democratreplacing Mr. Biden jumped on PredictIt, an election prediction market. Even with this turmoil, financial markets seem utterly unruffled by political developments.
Momentous as this election may be, stocks did well under President Trump and they are doing well under President Biden — not necessarily because of any of their policies.
The harsh truth is that the market is amoral and largely apolitical. Most people have been better off financially if they disregarded politics entirely.
Staying in the Market
Consider three hypothetical investors with different views about politics and finance, in a study by Jeff DeMaso, editor of The Independent Vanguard Adviser, a newsletter focused on Vanguard funds.
Each investor started with $10,000 at the beginning of 1977. They were free to move their money between the Vanguard 500 stock index fund and the Vanguard Cash Reserves Federal Money Market fund.
One person held the Vanguard stock fund only when a Democrat was in the White House. Another trusted the stock fund only during Republican administrations. The third was apolitical in her investing life and held the Vanguard 500 fund at all times.
Here are the results for each portfolio from January 1977 through May 2024:
Note that during that period, Democrats and Republicans held the presidency almost the same number of years: 24 for Republicans vs. 23.5 years (and counting) for Democrats. So someone who invested only during Republican presidencies had a slight time advantage.
But the market has done better under Democratic presidents than Republicans — not just since 1976 but all the way back to 1900.
Don’t make too much of that. There haven’t been enough presidencies to make a statistically valid conclusion. What is clear is that stocks prospered under both political parties, and that by staying in the market through 12 presidential terms, the apolitical investor benefited from the marvelous effects of compound returns with reinvested dividends in a generally rising market.
But remaining in the market isn’t always easy. Despite the market’s upward tendency, big declines happen with disturbing regularity, but at unpredictable times. It doesn’t seem to matter who the president is.
For example, from Oct. 13, 2007, until March 13, 2009, during the financial crisis spanning the Bush and Obama administrations, the S&P 500 lost about half of its value. In February and March 2020, at the onset of the coronavirus pandemic in the last year of the Trump administration, the S&P 500 fund fell more than 30 percent. And in the nine months through September 2022, as the Federal Reserve raised interest rates to combat inflation in the current, Biden administration, the S&P 500 fund lost about 24 percent.
Sometimes, the S&P 500 ended up lower during a presidential administration than when it started. That happened in the Nixon, George W. Bush and Hoover administrations. Avoiding stocks during those entire presidencies would have been a good move, but then you would also have had to know when to get back into the market. Alas, no one knows in advance when the market will rise or fall, especially not the Wall Street gurus who make predictions every year.
And Yet
There are many other valid ways of investing in an election year. I don’t recommend them, but I follow them.
I’d place most of them under the rubric of market timing — investing jargon for buying and selling at opportune moments — a practice that can be immensely profitable for those capable of doing it reliably. Most people, including market professionals, can’t manage that feat consistently, however. I certainly can’t.
Even so, there’s an enormous cottage industry on Wall Street devoted to predicting whether the overall market, or particular sectors, will rise or fall.
Here’s a thumbnail summary of the current wisdom, such as it is. It’s based on the assumption that the two current candidates continue their campaigns.
The consensus is that as long as there’s no landslide victory for either party — so neither controls the White House and both houses of Congress — the markets will be fine.
Still, under those circumstances, if there’s a Trump victory: Expect more and higher tariffs, which could disrupt trade and be inflationary, and hurt “the consumer discretionary, industrials, and information technology sectors,” in the view of UBS, the financial services company. Mr. Trump would probably manage to lower taxes and increase the budget deficit, stimulating the economy but, again, goosing inflation — which could lead to higher interest rates. There is likely to be less regulation, with sectors like fossil-fuel energy and financial services benefiting.
If Mr. Biden is re-elected but Democrats don’t control Congress, the status quo continues. Expect greater regulation (though the Supreme Court on Friday limited the executive branch’s regulatory powers) and higher taxes for wealthy people and companies than under Mr. Trump, along with executive orders aiding “companies within industrials, materials, and utilities focused on renewables and energy efficiency,” according to UBS.
A landslide giving control of both the White House and Congress for either party would be unexpected and could disrupt the markets. Mr. Biden might be able to achieve legislative feats that have been out of reach. The probability of tax increases on the rich and on corporations rises. The chance of positive outcomes for clean energy companies increases, while banks and fossil-fuel companies will have a tougher time, or so the Wall Street thinking goes.
A Trump landslide would be the most unsettling outcome from a purely financial standpoint because he could impose policies that might radically change the way business has been done, and life has been run, in the United States. The New York Times is covering the plans underway for a second Trump administration. I won’t get into details here.
Neither a Trump landslide — or a Democratic one — has “been priced into the markets,” Anthony Saglimbene, chief market strategist for Ameriprise Financial, said in a briefing for journalists. “If we wake up on Nov. 6 and it looks like we have a one-party kind of control of Congress, I would expect volatility to increase.” But, he added, the markets are likely to recover rapidly. History tells us, Mr. Saglimbene said, that the market will refocus on interest rates and corporate profits “once it moves past the election cycle.”
What if another Democrat runs and wins? The same logic holds. Some policies will change, the markets may initially be flustered, but the search for profits will triumph in the end.
A Caveat
“This time is different” is rarely true in investing. But every so often, things really are different.
My assumptions about the markets and investing are based on a central premise: that the legal, economic, social and political system that has prevailed until now will continue, with some evolution but without a major break, well into the future. Mr. Trump has promised to “undo foundations of American democracy and to rule as authoritarians in other countries have,” as my colleague David Leonhardt has written.
Hedging against that possibility isn’t merely a financial issue, of course. Holding some gold, which I don’t do now, might be wise if the foundations of American democracy are shaken. Holding stocks and bonds from other countries in low-cost index funds, which I always do to further diversify my portfolio, might be urgent in a U.S. crisis. Holding extra cash might be a smart move.
But, oddly, because the United States is so important globally, past crises here have shaken up foreign markets, too, and in times of trouble, where are you going to go for safety? Invariably, since World War II, it’s been the United States, strengthening U.S. Treasuries and the dollar, not weakening them.
Up to a point, that dynamic can be expected again. But only up to a point. I’m hoping we won’t find out where that point is.
So I’m not claiming that it makes no difference who wins. It matters a great deal. Vote, by all means.
But tune out politics when you turn to investing. You are likely to end up wealthier than if you base your financial decisions on political convictions.
NEW YORK (AP) — Shares of Tesla soared Wednesday as investors bet that the electric vehicle maker and its CEO Elon Musk will benefit from Donald Trump’s return to the White House.
Tesla stands to make significant gains under a Trump administration with the threat of diminished subsidies for alternative energy and electric vehicles doing the most harm to smaller competitors. Trump’s plans for extensive tariffs on Chinese imports make it less likely that Chinese EVs will be sold in bulk in the U.S. anytime soon.
“Tesla has the scale and scope that is unmatched,” said Wedbush analyst Dan Ives, in a note to investors. “This dynamic could give Musk and Tesla a clear competitive advantage in a non-EV subsidy environment, coupled by likely higher China tariffs that would continue to push away cheaper Chinese EV players.”
Tesla shares jumped 14.8% Wednesday while shares of rival electric vehicle makers tumbled. Nio, based in Shanghai, fell 5.3%. Shares of electric truck maker Rivian dropped 8.3% and Lucid Group fell 5.3%.
Tesla dominates sales of electric vehicles in the U.S, with 48.9% in market share through the middle of 2024, according to the U.S. Energy Information Administration.
Subsidies for clean energy are part of the Inflation Reduction Act, signed into law by President Joe Biden in 2022. It included tax credits for manufacturing, along with tax credits for consumers of electric vehicles.
Musk was one of Trump’s biggest donors, spending at least $119 million mobilizing Trump’s supporters to back the Republican nominee. He also pledged to give away $1 million a day to voters signing a petition for his political action committee.
In some ways, it has been a rocky year for Tesla, with sales and profit declining through the first half of the year. Profit did rise 17.3% in the third quarter.
The U.S. opened an investigation into the company’s “Full Self-Driving” system after reports of crashes in low-visibility conditions, including one that killed a pedestrian. The investigation covers roughly 2.4 million Teslas from the 2016 through 2024 model years.
And investors sent company shares tumbling last month after Tesla unveiled its long-awaited robotaxi at a Hollywood studio Thursday night, seeing not much progress at Tesla on autonomous vehicles while other companies have been making notable progress.
TORONTO – Canada’s main stock index was up more than 100 points in late-morning trading, helped by strength in base metal and utility stocks, while U.S. stock markets were mixed.
The S&P/TSX composite index was up 103.40 points at 24,542.48.
In New York, the Dow Jones industrial average was up 192.31 points at 42,932.73. The S&P 500 index was up 7.14 points at 5,822.40, while the Nasdaq composite was down 9.03 points at 18,306.56.
The Canadian dollar traded for 72.61 cents US compared with 72.44 cents US on Tuesday.
The November crude oil contract was down 71 cents at US$69.87 per barrel and the November natural gas contract was down eight cents at US$2.42 per mmBTU.
The December gold contract was up US$7.20 at US$2,686.10 an ounce and the December copper contract was up a penny at US$4.35 a pound.
This report by The Canadian Press was first published Oct. 16, 2024.
TORONTO – Canada’s main stock index was up more than 200 points in late-morning trading, while U.S. stock markets were also headed higher.
The S&P/TSX composite index was up 205.86 points at 24,508.12.
In New York, the Dow Jones industrial average was up 336.62 points at 42,790.74. The S&P 500 index was up 34.19 points at 5,814.24, while the Nasdaq composite was up 60.27 points at 18.342.32.
The Canadian dollar traded for 72.61 cents US compared with 72.71 cents US on Thursday.
The November crude oil contract was down 15 cents at US$75.70 per barrel and the November natural gas contract was down two cents at US$2.65 per mmBTU.
The December gold contract was down US$29.60 at US$2,668.90 an ounce and the December copper contract was up four cents at US$4.47 a pound.
This report by The Canadian Press was first published Oct. 11, 2024.