Although the U.S. president has no authority in signing in bulls or vetoing bears, it hasn’t prevented political scientists from speculating on what the outcome of the presidential race has on the macroeconomy and the markets. During every election cycle, investors struggle to find out how their portfolios will be impacted by the outcome.
First of all, just to dispel one popular belief: Republican presidents are not in fact better for the stock market than Democrats. Although one may believe the pro-business stances of the GOP will benefit the overall stock market more, historical data does not support this conjecture. Since 1960, presidential election years have seen an average S&P return of 9.1%, compared to just 8.8% for normal years, which means investor confidence is actually boosted when a presidential candidate is sworn in or reelected.
Normally, the best investment advice during an election year is to simply ignore the outcome as a factor that impacts your portfolio: one should continue to focus on basics like market timing, risk, and diversification—not the campaign promises that have no real connection.
However, this election year is very different. Donald Trump, the Republican frontrunner, and Bernie Sanders, who is polling closely behind Hillary Clinton, have endorsed an array of economically unfeasible policies that are sure to damage the economy. The most popular among these proposals is replacing free trade with protectionist policies, which increases the price of goods for consumers by relinquishing the cheapest economic resources available for creating the goods. This ultimately leaves consumers less money to invest in companies and the stock market. Other ridiculous proposals include reinstating the Glass-Steagall law, which separates commercial banking from investment banking, but leaves less money in circulation from regular depositors to be invested in the world economy.
If there’s one thing investors and Wall Street analysts do not like, it is the uncertainty associated with a Trump or Sanders presidency. With most of the other candidates, investors know more or less what to expect: Clinton, Kasich, and Cruz have clearly defined platforms and goals that don’t step too out of line with the mainstream. They are much more pragmatic and do not entangle the frail state of the stock market with their own ego or misguided political philosophy. Although past presidential elections have mostly caused investors to gain confidence, this one may just be the one that defies all the rules and norms.
Nevertheless, if there’s one thing that the markets can predict with more certainty, it’s whether the political party in power can retain the White House. In all the presidential elections since 1900 when the incumbent party won, the Dow Jones industrial average’s year-to-date-performance was a gain of 10.8%. On the other hand, when the incumbent party lost, the average loss was 3.7%. The current weak U.S. economic data combined with the global slump adds to the market anxiety that prompts people to turn against the incumbent President’s policies. As the economy gradually becomes worse, the upbeat narratives of Obama, Clinton, and Kasich will lose ground to populist fear-mongering. Trump and Sanders will find it increasingly easy to sway the masses with their “alternative economics” message.
While the stock market conditions are a better indicator of the 2016 election outcome than the 2016 election outcome will be an indicator of how the market will do, it is nevertheless important to realize that the populist proposals which are rapidly gaining public acceptance will be detrimental to the stock market. The anti-free market sentiments currently only erode investor confidence de facto, but if transformed into actual policy, it will de jure bring down the stock market.
One of the reasons I support both Trump and Sanders is in the hopes that Americans become more privy to the corruption we have. When party activists in Colorado can choose delegates without any input from the voters, and those activists are establishment supporters, there is nothing that will persuade those activists to pick any delegates who support an insurgent candidate. The entire process is designed to stop insurgent candidates (which is what Trump is).
Of course, the exploiter-funded pundits who call Trump a “whiner” and a “loser” because he didn’t get any of the Colorado delegates fail to mention that Trump never had a chance to get any of them in the first place as an insurgent. The rigged process was put in place to help ensure America’s exploiters maintain power. The exploiter-funded media puppets are saying that what happened was perfectly fine because the committee rules enabled them to cancel their election from the outset and then give the delegates to whomever they wanted (RIP democracy).
If Kasich were the current viable anti-insurgent candidate rather than Cruz, they would have given Kasich all of the Colorado delegates instead of Cruz. Despite that, Cruz is trying to convince people that it was his “superior organization” that deprived Trump and Kasich of getting even a single delegate…LOL. Three cheers for America, our exploiter-controlled media, our rigged election process, our two-faced politicians, and the ignorant people who don’t question any of it!
Here’s a video from a Colorado Trump delegate ejected from the process…
https://www.facebook.com/larry.lindseyphd/videos/10206019645066642/