The fourth year of a US president’s term tends to be good for US stocks, and 2024 maintained this trend. While campaign pageantries steal headlines, the parts of the political scene that more directly impact stocks—namely, Congress—are quiet. When politicians are busy traveling to garner votes, making outlandish claims, and kissing babies, they don’t pass laws. That reduces legislative risk and keeps stocks happy—a big reason for this year’s positive returns.
Please note: Our political commentary is nonpartisan and nonideological by design. We favor no political party or candidate. We assess politics solely for potential capital market impacts.
As for what stocks will do after the November vote, it is speculated by many, but market returns in US presidential election years and inaugural years typically follow a trend. When a Republican wins, stocks usually do great for the rest of the election year, as pro-business campaign verbiage brews up happy sentiment. But in the inaugural years, returns tend to be muted as the new president moderates and disappoints those lofty expectations. Conversely, when Democrats win, stocks usually post below-average returns in the election year as investors fear anti-business campaign pledges and populist campaign rhetoric. Still, in the inaugural year, markets achieve above-average returns as the Democratic president moderates, surpassing investors’ low expectations.
So, if former President Trump wins, history implies an excellent finish to 2024, with a more modest or negative 2025. If Vice President Harris wins, the political performance cycle argues for a modest finish to 2024 and a better-than-expected 2025 as reality tends to undershoot those fears, and the relief sends stocks upward. The US has a very long history of this precedent. It doesn’t work perfectly, but it works well, and the probabilities are high.
Overall, neither party is inherently better or worse for stocks, and thinking otherwise is to act on bias. Instead, look at the totality of elections and assess what policies will likely become law.
That said, many fret about the potential impact of both candidates’ policies becoming law, and many studies have already assessed this or that party’s effect on the economy. At this stage, the best you can do is analyze the election structure and prepare for sentiment features in election years.
To analyze the election structure, you first need to understand that the United States Congress is comprised of two chambers: the Senate and the House of Representatives. The Senate, or upper chamber, has 100 seats—two per state. Of these, 34 are up for election in November. Democrats are playing a severe game of defense because Republicans only need to win two of the 34 seats to obtain a majority. This structure reasonably predicts the Senate will move to a slight Republican majority in November.
The structure further suggests continued gridlock because the lower House chamber is a tossup and may go to Democrats or remain in Republican control. Either way, neither chamber looks like it will have significant majorities because the swing seats up for election in the House are primarily not the same as where the swing seats are up for election in the Senate.
Remember, political gridlock is bullish for capital markets because it reduces the probability of significant changes to property rights on the horizon. The real benefit of the election is that there is a winner, which removes political uncertainty, which is a positive for capital markets. Then, we wait and see if the US politicians elected this November do what they said while campaigning or conveniently forget.
So don’t overrate a president’s ability to enact change unilaterally. The US Constitution limits their power, requiring Congress to approve most tax-and-spend and legislative decisions. Although trade policy is a wild card, as Congress has surrendered some authority to the president, that isn’t a reason to be bearish.
It is worth remembering that politicians have a long history of spouting anti-trade rhetoric on the campaign trail and then U-turning once in office. Bill Clinton campaigned against NAFTA and then signed it—ditto for Barack Obama and the free-trade deals with South Korea and Colombia. Some of Donald Trump’s promises that didn’t happen were building a wall and having Mexico pay for it, repealing the Affordable Care Act, and achieving 4% economic growth. Further, threatening tariffs against China over currency manipulation and “dumping” subsidized exports seems to be a campaign requirement from most politicians, but no one ever follows through—for good reason.
In closing, it does not matter if you fear former President Trump getting elected or Vice President Harris’ campaign pledges. Both are politicians, and politicians’ promises rarely become a reality. Thus, if elected, either candidate will become less harmful than feared and set up the potential to create an upside surprise for stocks in 2025.
