The impact of US presidential election on US stock market

With the U.S. election approaching, and Biden’s support rate firmly above trump, Wall Street is increasingly worried that the US stock market will usher in a huge negative. But according to a new report from Suntrust advisory services, a consultancy, investors may have been more concerned about who will be elected president.

Investors who sold us stocks to avoid the risk of a candidate (Democratic or Republican) becoming president in the past 15 years have missed out on big gains in the first year of the new president, according to the report.

“This is an election year, and sentiment is high,” Keith Lerner, chief market strategist at Suntrust advisory services, wrote in a report released Monday (August 24) by Suntrust advisory services. “We strongly warn against confusing portfolio and politics.”

Lerner’s team looked at the historical performance of the S & P 500 over most of the years from 1933 to 2019 and found that the market “performed well in a variety of political situations,” regardless of which party candidate was in the White House.

In the past 15 years, despite the growing political turmoil in the United States, the S & P 500 has performed well in the first year of the new president, with an average return of more than 20%. However, the new president’s fourth year in office could be dangerous for the stock market. As shown in the figure below:

Historically, investors who fled the stock market before Obama took office in the White House missed out on the S & P 500’s 26% total return in 2009. Similarly, investors who pulled out of the stock market before trump sat in the Oval Office lost 22% of their return in 2017.

Don’t just focus on tax policy, there are always sectors that will benefit

Investors are worried that Biden’s election is mainly due to his advocacy of aggressive tax policies, which may affect the profits of U.S. stock companies. Relatively speaking, Trump’s tax cut stance is more popular in the market.

But history has shown that the factors affecting industry returns are far beyond tax policy, and no matter which presidential candidate wins, there are always some sectors that will benefit.

“For example, if Biden is elected, renewable energy, infrastructure and stocks affected by trade policies may benefit; if trump continues to be in power, defense and aerospace, traditional energy and finance sectors may perform better,” Lerner team wrote.

The team also stressed that factors that may affect industry returns are “far beyond Washington” or tax policies, and that business cycles are also important considerations.

Specifically, the post World War II economic boom in the 1950s brought the 10-year annualized return on the S & P 500 index to 19.3%, the highest in 70 years, despite the “extremely high tax rates” at that time.

In sharp contrast, despite the extremely low tax rate in 2000s, the return of the S & P 500 index was only -1%, mainly due to the breakdown of the Internet bubble and the real estate bubble.

“In addition, after the last presidential election, the market generally believed that finance, energy and small cap stocks would benefit, but these sectors proved to underperform the S & P 500,” the team wrote.

The energy sector fell 12.4% during Trump’s leadership. Since the beginning of this year, the situation of global crude oil oversupply has continued, the oil demand has been greatly reduced by the epidemic situation, and more and more countries have changed to clean energy, which has led to a sharp drop in the energy sector. This further proves that the factors influencing the industry returns are not single.

On Monday, optimism about possible progress in anti epidemic drugs or vaccines pushed the three major U.S. stock indexes higher. The S & P 500 index and the NASDAQ index both set record closing highs, and the Dow closed above 38000 for the first time in six months.

By the end of the day, the S & P 500 index was up 34.12 points, or 1.00%, at 3431.28; the NASDAQ index was up 67.92 points, or 0.6%, to 11379.72; and the Dow Jones index was up 378.13 points, or 1.35%, to 28308.46.

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