What happens if Trump gets reelected? What happens if Biden gets elected? How will your investments and retirement be impacted? We are living in an interesting time in history. The Coronavirus pandemic has shaken up our economy, the stock market, the job market, and life in general. On top of that—it’s an election year, which historically comes with volatility in the market. So what does the election mean for your investments? Listen to this episode of Retirement Made Easy to hear my thoughts!
You will want to hear this episode if you are interested in…
- [2:27] How will the 2020 US presidential election affect markets?
- [5:25] Presidential Politics and Stock Returns
- [7:10] Stock Market Performance in Presidential Election Years
- [10:17] What if Joe Biden is elected as president?
- [16:50] Should we bail out of the market if Biden is likely to be elected?
How does a presidential election affect markets?
This J.P. Morgan article points out that since 1932 an incumbent has never failed to get reelected—unless a recession occurs during their time in office. The article goes on to say that ¾ of sitting presidents have been reelected. Those are good odds for President Trump, despite the COVID-19 related recession.
Secondly, the S&P 500 volatility has been higher in election years. So we can expect a lot of volatility between now and election time. It’s interesting to note that markets often react positively immediately following the election of a Republican president. Their policies are thought of as more market-friendly.
Another article by Rob Arnott and Vitali Kalesnik sought to answer this age-old question: Does the market perform better with a republican or democractic president? The answer? There’s no relationship between the political party in power and actual stock market returns.
Stock Market Performance in Presidential Election Years
Michael Townsend found that the 3rd calendar year of a presidential term ends up being positive 82% of the time. Trump’s 3rd year was 2019 and the market had a wonderful year. Townsend also points out that market returns are influenced by far more factors than who is in the office (business cycles, corporate profits, and globalization).
The better the company’s earrings, the better the market will do overall. If profits exceed expectations, the market will thrive. Companies will shift and pivot no matter what policies are put in place so they can thrive in any environment.
If you look at the stock market in the 3 months preceding the election (Aug-Oct), the S&P 500 predicts the result of the stock market. If it’s positive, 87% of the time the incumbent is re-elected. Does the current state of the market and economy point to the president deserving to be reelected?
What if Joe Biden is elected as president?
How will a Joe Biden presidency impact you? Brittany De Lea summarizes Biden’s tax plan in this article. Trump’s 2017 Tax Cuts and Jobs Act reduced taxes for corporations and individuals. The article points out that Biden’s proposal repeals a lot of these changes. The top income bracket would be taxed at 39.6% instead of the current 37%. He also plans to increase corporation taxes from 21% to 28%.
I analyzed these proposals, and I’m strongly opposed to Biden’s plan to get rid of the Step-Up in Basis upon death. What is that? Let’s say my father bought $10,000 worth of Apple stock 30 years ago. When he passed away, the stock was worth $100,000. Whatever it was worth on the day of his death is my basis. If I wanted to sell it for what it was worth, I would pay no capital gains. If it increases in value since the day of his death, I’d only pay tax on those capital gains—not from the $90,000 increase during my father’s lifetime.
Joe Biden would get rid of the Step-Up in Basis. Anyone that inherits money or land would pay a LOT more in taxes. On top of that, the tax policy center estimates his tax proposals would increase federal tax revenue by 4 trillion dollars between 2021 and 2030.
What do I recommend doing with your long-term investments if Biden is elected? How do I feel about market timing strategies? Listen to the whole episode to hear my thoughts!
Resources & People Mentioned
- How will the 2020 US presidential election affect markets?
- Presidential Politics and Stock Returns: Is the Relation Real or Spurious?
- Stock Market Performance in Presidential Election Years
- Joe Biden’s 2020 tax plan: The key points
- Time, not timing, is the best way to capitalize on stock market gains
- Step-Up in Basis Definition
Connect With Gregg Gonzalez
- Email at: Gregg@RetireSTL.com
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- Website: https://StLouisFinancialAdvisor.com
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