{"id":8891,"date":"2020-10-05T16:26:44","date_gmt":"2020-10-05T16:26:44","guid":{"rendered":"https:\/\/zackspcg.com\/blog\/?p=8891"},"modified":"2022-02-26T13:06:29","modified_gmt":"2022-02-26T13:06:29","slug":"how-will-the-2020-election-impact-the-markets","status":"publish","type":"post","link":"https:\/\/zacksim.com\/blog\/how-will-the-2020-election-impact-the-markets\/","title":{"rendered":"How Will the 2020 Election Impact the Markets?"},"content":{"rendered":"\n<p>When 2020 started, my biggest concerns were an escalating\ntrade war with China and geopolitical tensions with Iran. No one could have\nanticipated that by October, some 25 million Americans would be collecting\nunemployment benefits<sup>1<\/sup> while the nation remains locked in an 8-month\nbattle with a global pandemic. <\/p>\n\n\n\n<p>Now, we\u2019re one month away from what is perhaps the most\nemotionally-charged \u2013 and uncertain \u2013 presidential election in modern U.S.\nhistory. What does this all mean for equity markets in Q4?<\/p>\n\n\n\n<p>For insight, I am going to start with an objective history\nof elections, politics, and the stock market. Anytime I venture into the\npolitical sphere, I remind readers that my approach to politics is agnostic \u2013 I\ndo not favor one outcome over another. My concern is the economic cycle,\ncorporate earnings, and to a lesser extent, how policy may impact the\ntrajectory of the recovery. <\/p>\n\n\n\n<p>_________________________________________________________________________<\/p>\n\n\n\n<p><strong><a href=\"https:\/\/go.steadyinvestor.com\/arrow-stock-market-outlook?source=website&amp;medium=blog&amp;term=motm_blog_2020_10_05&amp;content=stock_market_outlook_report \">How Could the Election Impact Market Recovery?<\/a><\/strong><\/p>\n\n\n\n<p>2020 is no stranger to volatility and the fears and unknowns\nthat come with it. The upcoming election only adds one more unknown to the\npile. How could the outcome impact the markets and the economic recovery? Get\ninsight into this question and many more with out just-released&nbsp;<strong>October\nStock Market Outlook Report<\/strong>.<strong><\/strong><\/p>\n\n\n\n<p>This report will help you make decisions based on data and fundamentals\ninstead of fears and media hysteria. This report contains some of our key\nforecasts to consider such as:<\/p>\n\n\n\n<ul class=\"wp-block-list\"><li><em>Should you be worried about the 2020 Presidential Election?<\/em><\/li><li><em>What stocks could go up when vaccine distribution rolls out?<\/em><\/li><li><em>Signs of recovery in certain sectors<\/em><\/li><li><em>What of U.S. GDP Growth?<\/em><\/li><li><em>U.S. returns expectations for 2020<\/em><\/li><li><em>What produces 2020 optimism?<\/em><\/li><li><em>And much more<\/em><\/li><\/ul>\n\n\n\n<p>If you have $500,000 or more to invest and want to learn more about these\nforecasts, click on the link below to get your free report today!<\/p>\n\n\n\n<p><strong><a href=\"https:\/\/go.steadyinvestor.com\/arrow-stock-market-outlook?source=website&amp;medium=blog&amp;term=motm_blog_2020_10_05&amp;content=stock_market_outlook_report \">IT&#8217;S FREE. Download the Just-Released October 2020 Stock Market Outlook<\/a><sup><a href=\"https:\/\/go.steadyinvestor.com\/arrow-stock-market-outlook?source=website&amp;medium=blog&amp;term=motm_blog_2020_10_05&amp;content=stock_market_outlook_report \">2<\/a><\/sup><\/strong><\/p>\n\n\n\n<p>_________________________________________________________________________<\/p>\n\n\n\n<p>Regarding history, it is common in presidential election years\nfor investors to assume their political party is better for the stock market. Others\nmay believe a specific balance of power within the executive and legislative\nbranches delivers the best results. History says the stock market goes up\nregardless of how power is divided: <\/p>\n\n\n\n<p><strong>S&amp;P 500 Average Annual Performance, 1933 \u2013 2019<\/strong><\/p>\n\n\n\n<figure class=\"wp-block-image\"><img decoding=\"async\" src=\"https:\/\/zacksim.com\/blog\/wp-content\/uploads\/2022\/02\/motm_table1_10032020.png\" alt=\"\" class=\"wp-image-8892\"\/><figcaption> <em>Source: Strategas Research.<sup>3<\/sup> To note: the above returns exclude 2001-2002, as power in the Senate changed hands three times in that period.<\/em> <\/figcaption><\/figure>\n\n\n\n<figure class=\"wp-block-image\"><img decoding=\"async\" src=\"https:\/\/zacksim.com\/blog\/wp-content\/uploads\/2022\/02\/motm_table2_10032020.png\" alt=\"\" class=\"wp-image-8893\"\/><figcaption> <em>Source: Strategas Research. To note: the above returns exclude 2001-2002, as power in the Senate changed hands three times in that period.<\/em> <\/figcaption><\/figure>\n\n\n\n<p>If you\u2019re wondering why returns are missing for a Democratic\npresident, Democratic House, and a Republican Senate, it\u2019s because the last\ntime the U.S. had this balance of power was in 1886!<\/p>\n\n\n\n<p>Some market historians may\nnote that Democratic presidents have been better for equity market returns. Since\n1933, for example, Democratic presidents have experienced higher stock market\nreturns than Republican presidents. But if we strip-out the outsized gains\nduring the 90\u2019s tech boom (Clinton) and the declines of the dot-com bust and\n2007-2008 Financial Crisis (Bush), then the difference in returns between\nDemocrats and Republicans is essentially zero.<sup>4<\/sup> In my view, market\nand business cycles over the long-term matter more than political parties do. <\/p>\n\n\n\n<p>I am not going to get into\nthe weeds on taxes or tax policy here, mainly because any tax plans made during\nthe campaign rarely materialize as advertised. What I will note, however, is\nthat many believe a Biden win would mean higher corporate and top-end tax\nrates, which is a perceived negative for earnings and equity markets. Once\nagain turning to history, I cannot find strong evidence that marginally higher\ntaxes adversely impact long-term equity returns. <\/p>\n\n\n\n<p>The biggest sustained increase to corporate tax rates\noccurred in the 1940s and 1950s, with the tax rate topping 50%.<sup>5<\/sup> As\ncorporate tax rates soared during and after World War II, the stock market was\nhardly fazed. During the 1940s, the S&amp;P 500\u2019s total return was +143.10%,\nand during the 1950s the index jumped +467.40%.<sup>6<\/sup> <\/p>\n\n\n\n<p><strong>Corporate Tax Rates\nfrom 1920 to Present<\/strong><\/p>\n\n\n\n<figure class=\"wp-block-image\"><img decoding=\"async\" src=\"https:\/\/zacksim.com\/blog\/wp-content\/uploads\/2022\/02\/image-3.png\" alt=\"\" class=\"wp-image-8894\"\/><figcaption> <em>Source: Internal Revenue Service<sup>7<\/sup><\/em> <\/figcaption><\/figure>\n\n\n\n<p>Same goes for personal income tax rates. The Biden campaign\nhas proposed raising individual tax rates for those earning over $400,000 to\n39.6% from 37%, while also proposing\na slight increase to Social Security payroll taxes on the high end of the\nincome spectrum.<sup>8<\/sup> Relative to history, these proposed changes are\nmarginal \u2013 the top tax rate was above <em>90%\n<\/em>for all of the 1950s, and as mentioned the S&amp;P 500 went up 467.4% over\nthat decade.<sup>9<\/sup> Taxes matter, but the economy and the market can\nabsorb higher tax rates better than most people think, in my view. &nbsp;<\/p>\n\n\n\n<p>One last point to make is regarding volatility surrounding\nthe election. The uncertain nature of the voting process and perhaps the result\nhas many thinking the stock market will be volatile in Q4. I do not disagree.\nBut in my view, long-term investment strategies should not attempt to factor-in\nthe <em>possibility <\/em>of short-term\nvolatility. I also think fear of election mayhem may already be priced into\nstocks, which to me means if we can avoid a worst-case scenario, stocks could\ndeliver an upside surprise. <\/p>\n\n\n\n<p>At the end of the day, no one knows how this election will unfold. But I do know and believe\nthat changing your long-term strategy because of a short-term unknown is not a\nprudent approach \u2013 it hasn\u2019t been throughout history, and I do not think\nspecial circumstances make it prudent today. <\/p>\n\n\n\n<p><strong>Bottom Line for Investors<\/strong><\/p>\n\n\n\n<p>Over time,\nthe stock market responds more to long-term earnings and economic growth trends\n\u2013 not to changes in political leadership. The emotional gravity of an election\n\u2013 and in particular this one \u2013 may make it appear as though the outcome will\nmake or break the nation. But I believe this mindset puts far too much emphasis\non political figures and policies, and far too little emphasis on the real\nengines of the U.S. economy \u2013 corporate earnings, small business growth,\ninvestment, the consumer, and innovation. Politicians come and go, but the\ndesire to grow, innovate, and pursue profit remains a constant. &nbsp;<\/p>\n\n\n\n<p>To help you focus on these important data points and key fundamentals that drive the U.S. economy, I am offering all readers our <strong><a href=\"https:\/\/go.steadyinvestor.com\/arrow-stock-market-outlook?source=website&amp;medium=blog&amp;term=motm_blog_2020_10_05&amp;content=stock_market_outlook_report \">Just-Released October 2020 Stock Market Outlook Report.<\/a><\/strong><\/p>\n\n\n\n<p>This Special\nReport is packed with newly revised predictions that can help you base your\nnext investment move on hard data. For example, you&#8217;ll discover Zacks\u2019 view on:<\/p>\n\n\n\n<ul class=\"wp-block-list\"><li>Should\nyou be worried about the 2020 Presidential Election?<\/li><li>What\nstocks could go up when vaccine distribution rolls out?<\/li><li>Signs\nof recovery in certain sectors<\/li><li>What\nof U.S. GDP Growth?<\/li><li>U.S.\nreturns expectations for 2020<\/li><li>What\nproduces 2020 optimism?<\/li><li>And\nmuch more<\/li><\/ul>\n\n\n\n<p>If you have $500,000 or more to invest and want to learn more about these forecasts, click on the link below to get your free report today!<sup>10<\/sup><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Mitch looks at what the election could mean for equity markets in Q4?<\/p>\n","protected":false},"author":3,"featured_media":8874,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[63,71],"tags":[],"class_list":["post-8891","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-mitch-on-the-markets","category-private-client-group"],"acf":[],"_links":{"self":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/8891","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/comments?post=8891"}],"version-history":[{"count":1,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/8891\/revisions"}],"predecessor-version":[{"id":10535,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/8891\/revisions\/10535"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/"}],"wp:attachment":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/media?parent=8891"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/categories?post=8891"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/tags?post=8891"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}