Trump, Harris, and the Market Rollercoaster: What Investors Can Expect

By Brian Andrew, CFA®, Chief Investment Officer | Executive Vice President, Merit Financial Advisors

When election rhetoric runs high, investors often feel they should be rushing to make adjustments to their portfolios. However, while the news cycle operates 24/7, it doesn’t mean investors should feel compelled to make wholesale changes to their long-term strategies. Historically, the S&P 500 has averaged a 7% gain during U.S. presidential election years since 1952. However, there are a handful of areas for investors to keep a close eye on and communicate with their advisors for this upcoming presidential election. Let’s take a closer look.

This year, all eyes are on tax laws

The biggest concerns from our clients during this election season have to do with potential changes to the current tax law. In 2017, the Tax Cuts and Jobs Act (TCJA) was passed, and the tax code was majorly reformed by dropping the corporate tax rate to 21%, adjusting individual income brackets, and raising the estate tax exemption, among other items. TCJA will sunset several provisions in 2025, with Republicans talking about extending them and Democrats talking about rolling them back (Vice President Harris has proposed a 28% tax). Certainly, changes to the corporate tax code will have implications for earnings and job growth, and investors are paying attention to that.

It remains to be seen what will happen to estate taxes, and that uncertainty is motivating some clients to sell assets and do more estate planning this year. Further, while inflation is certainly receding, the lingering high costs of many goods and services are making it easier for pundits to create inflammatory messaging.

What does a Harris or Trump presidency mean for the markets?

It’s important to note that most election debates on the news have little impact on the financial markets. Neither Democrats nor Republicans are talking about significant reductions in government spending, so changes in fiscal policy are not expected regardless of which party wins the election. Certainly, the markets will adjust based on who is ahead in the polls, which happened when President Biden stepped aside earlier this summer.

For each candidate, the markets are keyed into the healthcare and defense sectors. The market perception is that a Harris win would be negative for healthcare: while there would be an increase on the research side, decreases in consumer costs and drug pricing are expected. The markets also anticipate negative effects related to defense spending, alongside raising corporate taxes, which would impact earnings, although Harris recently proposed a more moderate plan than her predecessor Biden.

Curiously, if Trump wins, there will be a similarly negative impact on healthcare but positive outcomes for defense due to his desire to spend more there. Unsurprisingly, corporate earnings would remain at a lower tax level, which would be positive for earnings and could be viewed more positively for job growth.

Instead of speculating, investors should focus on which party will control Congress, as that will have more of an immediate impact on the markets. If one party takes control of the House and Senate, fiscal policy has a better chance of changing, and markets could become more volatile. If the government ends up split between two parties, the markets will likely react positively. Overall, the stock market does well in the fourth year of an administration because there are fewer policy changes leading up to the next election cycle.

Advisors can put it all in context

Our advice for any investor during tumultuous election seasons or every market fluctuation remains the same: stay the course. Financial advisors are specialists in preparing for different probabilities and scenarios that could negatively or positively affect their clients. In that respect, clients don’t need to suggest or make any changes to their portfolio, their advisor will monitor policy changes and the portfolio will change accordingly.

As we inch closer to the November elections, expect more volatility as the polls move back and forth, but recognize that the noise doesn’t truly impact asset prices. Your advisor will view an increase in volatility as an opportunity and act accordingly.

One caveat: clients who have not spoken with their advisor in the past year should use this time to reconnect. The bond market is up, and rebalancing your portfolio to take advantage of the appreciation in both stocks and bonds makes good sense.

The bottom line is the upcoming election’s impact on your portfolio is something your advisor will monitor and manage!

Want to review your portfolio or update your estate plan before the election? Reach out to your Merit Financial Advisor today or  find a Merit Financial Advisor in your area  for a complimentary consultation.