Do Presidents Affect the Stock Market?
They say not to discuss sex, religion, and politics in polite company. So, in the interest of keeping the peace, let's explore the impact of U.S. presidents on the stock market from a conceptual perspective, without diving into the specifics of individual presidencies or political parties.
While presidents certainly have the power to influence the market through their policies and decisions, it's important to remember that the stock market is affected by a multitude of factors that can muddy the waters. Let’s explore how presidents might influence the market while considering the broader picture.
Economic Policies
Presidential policies related to taxes, spending, and regulation can have a significant effect on the stock market. For instance, tax cuts may boost corporate profits and stock prices, as companies have more capital to reinvest or return to shareholders. Conversely, increased regulation might lead to higher compliance costs, which can affect profitability and market performance. Perhaps most importantly to you, is the changes an administration might make to individual tax laws, including rates, brackets, both income and capital gains, as well as treatment of inheritance and more.
Trade Policies
Decisions on tariffs and trade agreements often have a direct impact on specific industries and the overall market. This is often called industrial policy which historically was frowned upon but has recently experienced new enthusiasm among both parties. A trade war might hurt export-driven companies by raising costs and reducing market access, whereas a new trade deal could open up markets and boost stocks by creating new opportunities for growth. Increased tariffs might help local companies compete, create jobs and create a fairer competitive space, but at the same time it can have a dramatic impact on the cost of goods. There’s often a significant tradeoff between jobs and the price of goods with regard to trade policy.
Fiscal Stimulus
During economic downturns, presidents often advocate for fiscal stimulus measures, such as infrastructure spending or direct payments to citizens. These actions can stimulate economic growth, bolster consumer spending, rescue individuals and companies from situations that may have otherwise destroyed them. However, they can have dramatic impacts on inflation.
Federal Reserve Appointments
The Federal Reserve is supposed to operate independently, but presidents can appoint to the Fed's Board of Governors. What the fed does or doesn’t do and how long they do or don’t do it, affects interest rates and consequently, the stock market. Lower interest rates often lead to increased borrowing and investing, providing a boost to stock prices.
Geopolitical Actions
Presidential decisions related to foreign policy, military actions, or international relations can create market volatility. Tensions with major trading partners might lead to uncertainty, while diplomatic resolutions can ease market fears and encourage investment. Although I will say, that it seems like there is always something geopolitical happening regardless of the president. While the manner in which the president handles these situations certainly enflames or calms things, they are prone to some level of market influence regardless.
Technological Advances
In addition to political influences, technological advancements can dramatically impact the stock market. Innovations like artificial intelligence, automation, and energy advancements can drive significant changes in the way businesses operate and compete. These developments often overshadow and muddy the extent to which any one action by a president impacts the market, as they can fundamentally alter industries and create new opportunities for growth.
Immigration Policy
Immigration policy can significantly impact industries and the broader economy. Policies that promote immigration can help address labor shortages. A larger workforce can lead to increased productivity and innovation, contributing to GDP growth. Immigration also contributes to consumer demand, as immigrants spend money on goods and services, further stimulating economic growth.
Conversely, more restrictive immigration policies can benefit domestic workers by reducing competition for jobs and potentially increasing wages. Some argue that stricter immigration controls can enhance national security and reduce the burden on public services. I’m trying hard here to offer both perspectives, so forgive me if my insight doesn’t seem prescriptive.
Delayed Impacts of Presidential Policies
It’s also important to consider that the changes presidents make can often have delayed impacts. This lag makes it difficult to determine whether the economic conditions experienced by one president are attributable to their policies or the delayed effects of their predecessor's actions. Economic policies, especially those involving infrastructure or regulatory changes, may take years to manifest fully in the economy.
The Bigger Picture
I guess what im trying to say here, is that it’s important to remember that many factors drive the stock market. Economic indicators, corporate earnings, global events, and technological advancements all play significant roles. Historical data shows that the stock market has generally trended upward over the long term, regardless of which political party is in power. Therefore, while presidents can influence market conditions, they are just one piece of the puzzle that investors consider when making decisions. One thing is certain, if a policy is instituted by the president, I will be examining its impacts on my clients, and doing my best to optimize their situation. Sometimes policies merit changes to strategy and other times they do not. In both cases, I’ll be discussing them with you here and in person so you know which it is for you.
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The views expressed herein are those of the author and do not necessarily reflect the views of Steward Partners or its affiliates. All opinions are subject to change without notice. Neither the information provided nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. Past performance is no guarantee of future results.
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