The Impact of Elections on the Markets and Tax Policy
With Labor Day behind us, we're in the final stretch of the 2024 presidential election race. As we follow the news and parse the most recent polls, some may ask, "How might what happens on November 5 impact my finances?”
As financial professionals, we’ve done some homework and come to the following conclusion: you may care passionately about who wins, but your investment portfolio probably doesn’t.
Markets Over the Long Term
Consider how the stock market has performed under Republican and Democrat presidents throughout history. As the accompanying chart shows, the stock market has fluctuated under the leadership of both parties. However, the long-term trend suggests that the stock market's performance may have more to do with the overall strength and resiliency of the U.S. economy than the person who sits in the Oval Office.1
Is a Split Government Better for the Financial Markets?
While stock market performance has not historically depended on who wins the presidency, history shows that the market tends to like split control between the two major parties.
As the chart below illustrates, Democratic control of the White House and Senate, with Republican control of the House, has produced the highest average annual return.
However, the runner-up is the opposite—a Republican president and Senate and a Democratic House. While mixing and matching control of the levers of power in Washington, D.C., produced comparable results, the low results for the Republican president and Democratic Congress combo may be attributed to the 1973 oil crisis and 2008 global financial crisis bear markets.1
What Matters to the Markets
Following how election results have affected the stock market over time is fascinating. Still, data suggests economic trends tend to have a more consistent relationship with market performance than who wins in November. Improving economic conditions (which can include falling inflation) tends to create a more favorable business environment.2
Tax-Policy Differences
What also can have more of an impact on your personal finances is tax policy. And while there may be some bipartisan common ground, this year's election does present two competing visions on taxes for individuals and families. Let’s look at where each party’s candidate stands.3
Keep in mind this article is for informational purposes only and is not a replacement for real-life advice. The tax policies outlined are based on assumptions and will be subject to revisions during the legislative process. We encourage you to consult your tax, legal, and accounting professionals before modifying your tax strategy.
The Fate of the Tax Cuts and Jobs Act
The Tax Cuts and Jobs Act (TCJA) of 2017 was designed to overhaul the federal tax code by reforming individual and business taxes.
Although some of the provisions were permanent, most individual tax changes are not. Unless extended, many of the changes implemented are scheduled to "sunset" on December 31, 2025. At that time, rates will revert to pre-2017 levels.
There has been some speculation that many of the provisions of the TCJA would be allowed to expire. However, based on the announced tax policies of both candidates, the lower rates may remain for the vast majority of taxpayers – those with incomes less than $400,000.The significant difference between the two proposals is the tax treatment for those making more than $400,000. Keep in mind that the president can lay out a tax policy, but it is up to Congress to pass any tax legislation into law.4
Higher-income individuals should be aware of potential changes that may impact their tax situation depending on the future of the TCJA. By being diligent, you may be better prepared for whatever comes down from Washington.
We always welcome collaborating with your tax professional to help align your financial and tax strategies.
Staying the Course
While elections can trigger some market volatility, we believe it is critical to keep short-term events in perspective and not allow them to distract you from long-term financial strategy. The best approach is often to create a portfolio that reflects your goals, time horizon, and risk tolerance.
We’re Here If You Have Questions
We're here to help. If you are a current client and want to discuss your strategy, please contact us anytime. If you are working with another financial professional and would like us to review your overall approach, please consider reaching out.
1Baird.com, March 14, 2024.The S&P 500 Composite Index represents the stock market, which is an unmanaged index considered representative of the overall U.S. stock market. Index performance is not indicative of the past performance of a particular investment. Past performance does not guarantee future results. Individuals cannot invest directly in an index. The return and principal value of stock prices will fluctuate as market conditions change. And shares, when sold, may be worth more or less than their original cost.
2U.S. Bank, June 21, 2024.
3Tax Foundation, June 2024.
4CNBC.com, June 13, 2024.
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Aviance Capital Partners, LLC (“ACP”) is an SEC registered investment adviser. Registration as an investment adviser is not an endorsement by securities regulators and does not imply that ACP has attained a certain level of skill, training, or ability. While the information presented is believed to be factual and up-to-date, ACP does not guarantee its accuracy, and it should not be regarded as a complete analysis of the subjects discussed. Account information is compiled solely by ACP, is not independently verified and does not reflect the impact of taxes on non-qualified accounts. In preparing this report, ACP has relied upon information provided by the account custodian. Please compare this statement with account statements received from the account custodian. The account custodian does not verify the accuracy of the advisory fee calculation. Please defer to formal tax documents received from the account custodian for cost basis and tax reporting purposes. The above consolidated and individual account performance information reflects the reinvestment of dividends, to the extent applicable, and is net of applicable transaction fees, ACP's investment management fee, if debited directly from the account, and any other related account expenses. ACP does not maintain any investment monitoring or performance responsibility for unmanaged or unsupervised assets and/or accounts. The client and/or its other investment professionals retain exclusive responsibility for the monitoring and performance of such assets and/or accounts.
All expressions of opinion reflect the judgment of the authors as of the date of publication and are subject to change. Not all services will be appropriate or necessary for all clients, and the potential value and benefit of the ACP’s services will vary based upon the client’s individual investment, financial, and tax circumstances. This should not be construed as specific investment, financial planning or tax advice tailored to an individual reader, and ACP suggests that readers consult a financial professional, attorney or tax advisory professional about their specific situation. Past performance does not guarantee future results. All investment strategies have the potential for profit or loss, and different investments and types of investments involve varying degrees of risk. There can be no assurance that the future performance of any specific investment or investment strategy, including those undertaken or recommended by ACP, will be profitable or equal any historical performance level.
Historical performance results for investment indices and/or categories, if included, have been provided for general comparison purposes only, do not represent actual portfolio performance, and generally do not reflect the deduction of transaction and/or custodial charges, the deduction of an investment management fee, nor the impact of taxes, the incurrence of which would have the effect of decreasing historical performance results. It should not be assumed that your account holdings correspond directly to any comparative indices. The index and sector performance data appearing or referenced above, if provided, has been compiled by the respective copyright holders, trademark holders, or publication/distribution right owners. Investors cannot invest directly in an index. ACP makes no warranty, express or implied, for any decision taken by any party in reliance upon such index information. The S&P 500 is the Standard & Poor’s index calculated on a total return basis. Widely regarded as the benchmark gauge of the U.S. equities market, this index includes a representative sample of 500 leading companies in leading industries of the U.S. economy. Although the S&P 500 focuses on the large-cap segment of the market, with over 80% coverage of U.S. equities, it also serves as a proxy for the total market. The Dow Jones is a price-weighted market index that tracks 30 large, blue-chip companies. The NASDAQ is the second-largest stock and securities exchange and attracts more technology-focused or growth-oriented companies. The Russell 2000 Index is a small-cap stock market index that makes up the smallest 2,000 stocks in the Russell 3000 Index. Bond Aggregate is represented by the iShares Core U.S. Aggregate Bond ETF.
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