It seems likely that the November election will pit Presidents Donald Trump and Joe Biden against one another yet again. After all, it’s a matchup that most Americans don’t seem to want.
According to a recent Reuters survey, two-thirds of respondents said they are “tired of seeing the same candidates in presidential elections,” and 18% said they wouldn’t even vote if the matchup is Trump vs. Biden again. Yet, this seems to be the course that the country is on.
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Politics aside, what really matters to investors is how their money might perform under each potential president. To address that issue, here’s a look at how the stock market generally performs during an election year, how it historically did under each of these presidents and what the future may hold depending on which president earns his second term.
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How Does the Market Generally Fare During Election Years?
When it comes to different political parties affecting the stock market, the results are not as clear as is commonly believed. According to a study from U.S. Bank, election results have only a minimal effect on the intermediate and long-term performance of the stock market. Economic and inflation trends have a much larger statistical effect.
However, historically speaking, the stock market does tend to have a good year when there’s a presidential election, regardless of who is running or who wins. According to Morgan Stanley, from 1928 through 2016, the average market return during an election year was 11.28%, close to but slightly above its long-term average. Although not included in the Morgan Stanley study, it also should be noted that in the most recent election year, 2020, the stock market was up 18.4%, continuing the streak.
As of Feb. 22, the S&P 500 was up 6.28% this year, so at least as of the early stages of the year, it’s off to another good start.
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How the Market Performed Under Trump and Biden
Under President Trump’s first term, the S&P 500 returned 67%. Biden’s first term is not yet complete, but as of year end 2023, the S&P 500 was up 25.9%. This makes it highly unlikely that his four-year performance will match Trump’s.
Does Political Party Make a Difference to the Stock Market?
Over the long run, the president doesn’t matter a whole lot to the market. Economic factors, along with fiscal and monetary policy, generally play a much larger role.
Jeremy Siegel, the Russell E. Palmer professor of finance at the Wharton School of the University of Pennsylvania, once told Forbes, “Stock markets do perform better under Democrats than under Republicans. That’s a well-known fact, but it does not imply cause and effect. … Bull markets and bear markets come and go, and it’s more to do with business cycles than presidents.”
Which Trump Policies Could Affect the Stock Market?
There seem to be some substantive policy measures that Trump would like to enact during a potential second term, and these are the ones that might affect the stock market most.
Specifically, Trump seems likely to curtail or eliminate green energy and/or EV tax credits in exchange for policies that favor domestic oil and gas production. He also likely would seek to reimpose tariffs on imported goods and perhaps enact additional ones. Neuberger Berman feels that a second Trump Administration could trigger a relief rally in large-cap pharmaceutical names as well.
These types of policies obviously would cause some disruption in their respective industries. However, they may or may not affect the market in the short term. If oil and gas stocks were to rise while green energy stocks fell, for example, the net effect on the stock market as a whole may be negligible.
As an investor, it may make more sense to focus on which specific stocks and industries might rise and fall if a second Trump term seems more likely, rather than planning for a broad market move either up or down.
How Might the Market React Under a Second Biden Term?
Extended or even increased corporate taxes are possible under a second Biden term, which could harm profitability and result in stock market profit-taking, according to analysts at TD Securities. But solar stocks and other clean-energy businesses could be clear to rally, according to Baker Avenue Wealth Management.
Even if investors may not be fans of Biden, the maintenance of “business as usual” after a second Biden win might be enough to keep the market in rally mode. If the Fed drops interest rates throughout 2024, as it seems inclined to do, that alone might lift markets, regardless of whether Biden wins.
The Bottom Line
Generally speaking, the stock market does best when it is not caught off guard. As both Trump and Biden have been president, investors have an overall understanding of what they’re likely to get either way.
While no one can say for sure what Trump or Biden would do during a second term, there’s no unknown or surprise candidate that could create fear and uncertainty in the stock market. By that emotional gauge alone, the stock market could just keep the status quo and not be very affected at all by who wins the November contest. Individual industries, however, might suffer more dramatic moves.
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This article originally appeared on GOBankingRates.com: Trump vs. Biden Again in 2024? What That Could Mean for Your Investments
