What the November 5th Election Results Could Mean for Financial Markets.

By Amit R Stavinsky
Managing Director-Investments

                                                                               
Tamar Securities, LLC and its affiliates, 911 Financial Services, and Firefighters United.

 

November 4, 2024

With polling indicating that the election remains a tossup between Harris and Trump, the resulting outcome is unlikely to matter much for financial markets. As far as the stock market is concerned, the outcome of the presidential election rarely has been a cause of concern. Stocks tend to go up in the years that follow Presidential elections irrespective of who is in the White House.

In fact, investing with your politics is almost a sure way to lose money.¹ According to Bespoke Invest, letting short-term politics interfere with your long-term investment decisions has been extremely expensive for investors.¹

Although past performance is no guarantee of future results, it is important to note that in the past 70 years, $1000 invested in the US stock market only when a Republican has been President would be worth $27,400 today. On the other hand, $1000 invested only when a Democrat has been a President would be worth $61,800. However, for those of us that put politics aside, the same $1000 would be worth $1.69 million today when investors remain invested throughout the political rotation. ¹

Putting it differently, since 1950, the S&P 500 index has gained 12.1% a year under Democrats, and 7.1% under Republicans according to BMO Capital Markets strategist Brian Belski.² Only two presidents -Richard Nixon, and George W. Bush - had negative annual returns, likely due to inheriting bad economies and not necessarily for what they did in office. Belski says that although there is much debate about which party is better for the U.S stock market, “We have found through our years of work that the U.S stock market tends to go up over time whether a Democrat or Republican is in the White House.” ³However, when comparing the last two presidential terms, stocks had an average annual return of 13.8% under Trump, while under Biden, stocks have returned 11.9% annually.⁴

In the end, it is important to note that over time, stocks follow profits, and not the results of presidential elections. Additionally, market cycles happen no matter who wins the election. According to one of Sir John Templeton’s maxims, bull markets are born on pessimism, grow on skepticism, mature on optimism, and die of euphoria.⁵

With that in mind, the following are some sectors in the U.S economy that in our view could be affected by either Donald Trump’s or Kamala Harris’s policies:

Electric Vehicles: A Harris win would most likely maintain the existing emission policies and EV tax credits. On the other hand, a Trump win would likely lead to the elimination of those incentives.⁶ According to Wolfe research analyst Emanuel Rosner, Tesla could be a big winner regardless of who wins the election. It will continue to benefit from friendly incentives by the Harris administration, as well as for not manufacturing in Mexico, which could be subject to tariffs under the Trump administration.⁷

Energy: A Trump win would likely unleash oil production, which is deemed supportive for oil stocks. On the other hand, a Harris win could be positive for solar, wind, and electric-vehicle equity investments. In general, investors should be cautious no matter who wins the White House because currently there is too much global oil production and not enough demand growth.⁸

Healthcare: A Harris win will most likely be positive for insurance companies in the Affordable Care Act marketplace and for the hospitals that treat their customers. On the other hand, a Trump win could be positive for Medicare Advantage plan companies by allowing for larger payment increases. “If Trump wins, you probably want to own Medicare Advantage,” says Chris Meekins, a healthcare policy analyst at Raymond James.⁹

Industrials: Demand for Artificial Intelligence and airplanes under Trump or Harris is likely to continue rising; although, a Trump victory would likely unleash tariff wars with other industrial nations such as China and Europe. His agenda of imposing tariffs to bring production home, in the interim, could cause headwinds for the industrial sector. That said, it is important to note that manufacturing during Trump’s first term of semiconductors, automobiles, and batteries have expanded domestically and have continued expanding under Joe Biden. All of that is now taking place during a manufacturing contraction in 23 of the past 24 months. This was measured by the index of the Institute for Supply Management of Manufacturing Purchasing Managers. The index reported a reading of below 50, which indicates contraction.¹⁰

Regional Banks: A Harris win would probably mean a continuation of the status quo. On the other hand, under Trump, the 4500 U.S. Regional banks which represent $2.7 trillion of the $24 trillion U.S. banking industry and are responsible for 60% of loans made to small businesses, would be subject to less regulations and more accommodative mergers and acquisitions environment.¹¹ Recently, Legendary investor Stanely Druckenmiller, cited a rally in bank stocks as evidence that the market is betting on a Trump victory.¹²

Technology: Deregulation of the technology industry is likely to be front and center for both Trump and Harris. A Trump campaign platform says his administration would “cut costly and burdensome regulations.” Harris, on the other hand, says that she would balance competition and innovation with a “New Way Forward” to “encourage innovation technologies like AI and digital assets while protecting our consumers and investors.” ¹³

Regardless of who wins, technology is a major contributor to the performance of the stock market. For example, this year alone Nvidia, Meta Platforms, Alphabet, Microsoft, and Amazon, have accounted for 61% of the S&P 500’s return¹⁴. Therefore, policies that encourage growth and fair competition would be crucial to the health of the U.S. economy.

Bond Market: Both the Harris and the Trump campaigns during this election cycle haven’t addressed the ballooning U.S. deficit of $35.92 trillion.¹⁵ The policy proposals of Vice President Kamala Harris would add $4 trillion to the federal deficit, and those of former President Donald trump would boost the deficit by an even steeper $7.8 trillion, according to the Committee for a Responsible Federal Budget.¹⁶

That is all on top of a 6% gross domestic product deficit with the economy already at full employment of 4.1% jobless rate, and no recession of a 2.8% third quarter Gross Domestic Product growth rate.¹⁷ A Trump victory in this environment has the potential to lead to higher bond yields when better growth prospects kick in alongside with a less- dovish Fed or lower cuts in interest rates as opposed to a Harris win.

The sun will rise again no matter who is the next President of the free world.

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This commentary reflects the personal opinions, viewpoints and analyses of the Tamar Securities, LLC’s employees providing such comments, and should not be regarded as a description of advisory services provided by Tamar Securities, LLC’s or performance returns of any Tamar Securities, LLC’s client. The views reflected in the commentary are subject to change at any time without notice. Nothing in this commentary constitutes investment advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Tamar Securities, LLC manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.

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Sources

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¹ https://media.bespokepremium.com/uploads/2023/08/Bespoke-Reasons-to-Invest.pdf
² Barron’s Up and Down Wall Street: "This Stat Shows the Market is Very Afraid of Election Day," Oct. 24, 2024. https://www.barrons.com/articles/stock-market-trump-harris-election-61b41129
³ Id.
⁴ Id.
⁵ https://www.franklintempleton.co.uk/resources-and-literature/templeton-maxims
⁶ “What the Election Means for Sectors and Companies,” Barron’s Election 2024, Nov. 1, 2024. https://www.barrons.com/articles/election-2024-harris-trump-technology-healthcare-energy-cars-1ebea218?st=2mtDXJ
⁷ Id.
⁸ Id.
⁹ Id.
¹⁰ Id.
¹¹ Id.
¹² Barron’s Up and Down Wall Street: "This Stat Shows the Market is Very Afraid of Election Day," Oct. 24, 2024. https://www.barrons.com/articles/stock-market-trump-harris-election-61b41129
¹³ What the Election Means for Sectors and Companies, Barron’s Election 2024, Nov. 1, 2024. https://www.barrons.com/articles/election-2024-harris-trump-technology-healthcare-energy-cars-1ebea218?st=2mtDXJ
¹⁴ Up and Down Wall Street: “The Hot New Portfolio Is 70% in T-Bills, the Rest in AI Stocks,” June 14, 2024. https://www.barrons.com/articles/t-bills-ai-stocks-nvidia-meta-7e277c4d?st=j3FTfZ
¹⁵ https://fiscaldata.treasury.gov/americas-finance-guide/national-debt/
¹⁶ Up and Down Wall Street Nov 1, 2024: “The Bond Market Signals Higher Rates. Stocks Won’t Like the Message.” https://www.barrons.com/articles/the-bond-market-is-sending-a-message-rates-will-stay-higher-20ab6565?st=3B7DDV
¹⁷ https://www.bea.gov/news/2024/gross-domestic-product-third-quarter-2024-advance-estimate