Election 2024 Update: It’s Policy, Not Party, That Matters

By Samuel Miller, CFA®, CFP®, CAIA®
Vice President of Investment Strategy

Historically, has the stock market fared better under Republican or Democrat administrations?

Many of us might instinctively answer Republican – based on the party’s traditional lower tax, pro-business platform. In reality, however, there’s very little statistical difference. Since 1950, the S&P 500® has produced strong annualized returns under both Democratic and Republican administrations. Notably, the best returns have come with a divided Congress. The market likes checks and balances!

It’s not the party in power that influences stock returns, but rather a host of other factors including where we are in the business cycle, the Fed’s monetary policy and current and projected corporate profits and valuations. Yet it’s all too easy to allow party politics to color our investment decisions, rather than focusing on what actually might help to shape the market’s future direction – the impact of policy decisions.

As of the time of this writing, it appears that Kamala Harris will receive the Democratic nomination, but a lot can change in a short amount of time. Whether November brings another Trump administration or a Harris presidency, it’s policy rather than party which will ultimately drive the economic train.

Which industries might benefit from either administration?

We don’t expect the Democrats’ fiscal and trade policy agenda to shift meaningfully in the event Harris is the nominee. There are three sectors which could especially benefit from proposed regulations:

1. Manufacturing: The Biden administration placed a strong emphasis on revitalizing the American manufacturing sector – particularly in areas such as clean energy, electric vehicles, and high-tech semiconductors and we would expect a continuation of this theme. Initiatives such as the Inflation Reduction Act and the CHIPS and Science Act aimed to bolster domestic production capabilities and have spurred approximately $220 billion in manufacturing construction investments over the last 18 months. This effort is expected to generate a significant number of manufacturing jobs, although many of these jobs may not materialize immediately. Politico notes in an article titled, “Biden’s manufacturing boom is underway. But the jobs haven’t followed yet.” by Adam Cancryn on January 19, 2024.
2. Renewable Energy and Clean Tech: Similar to Biden, Harris’ policies are likely geared towards reducing carbon emissions and promoting green energy. The Inflation Reduction Act includes tax credits intended to stimulate private-sector investment in electric vehicles, batteries, and other clean energy components. Companies in the renewable energy sector, including solar, wind, and electric vehicle manufacturing, are likely to benefit from these incentives.
3. Healthcare and Pharmaceuticals: Initiatives aimed at expanding healthcare access and affordability (e.g., strengthening the Affordable Care Act) could continue to influence this sector. Policies reducing prescription drug costs and expanding Medicare benefits may impact a wide range of pharmaceutical and healthcare companies – particularly benefiting industries involved in health insurance and care provision.

Under a second Trump administration, three different sectors may be poised to benefit:

1. Fossil Fuels and Traditional Energy: Trump’s first administration was known for deregulatory actions favoring traditional energy sectors, including oil, gas, and coal. Removal of environmental regulations and support for pipeline constructions were hallmarks that, if continued, could benefit these industries again.
2. Financial Services: Trump’s previous term saw efforts to roll back parts of the Dodd-Frank Wall Street Reform and Consumer Protection Act. A second term might continue in the direction of reducing regulations on banks and financial institutions, which could positively impact the financial sector.
3. Real Estate and Construction: Trump’s previous policies were often aimed at easing regulations to encourage construction and real estate development – including efforts to streamline environmental review processes. A second term could see further benefits for these industries through reduced regulatory oversight and hurdles.

It’s also worth noting that under a divided government (where the Executive branch and one or both chambers of Congress are of differing parties), the legislative roadblock that typically ensues – with fewer bills being advanced and implemented – has historically tended to be favorable for stocks.

Regardless, the factors that affect stock prices – whether positive or negative – are rarely influenced by the government in our free market economy. Even in this time of uncertainty, despite the heated rhetoric and growing hostility that boiled over into a recent assassination attempt, the best course of action is generally to stick with your carefully crafted long-term financial plan and trust that thoughtful diversification will enable you to weather any storms. Of course, you’ll want to periodically rebalance to ensure that market turmoil hasn’t significantly altered your overall allocation – resulting in either too little or too much risk. Aside from considering a few sector tilts, however, it’s best to leave party politics out of your investment portfolio.

The information contained herein is for informational purposes only and should not be considered investment advice or a recommendation to buy, hold, or sell any types of securities. Investing in securities carries a risk of loss, including the potential loss of principal. Different types of investments involve varying degrees of risk, and there can be no assurance that any specific investment will be profitable or suitable for a particular investor’s financial situation or risk tolerance. The information contained herein was carefully compiled from sources SIA believes to be reliable, but we cannot guarantee the accuracy or completeness of the information provided. Past performance does not guarantee future results. For details on the professional designations displayed herein, including descriptions, minimum requirements, and ongoing education requirements, please visit www.signatureia.com/disclosures. Signature Investment Advisors, LLC (SIA) is an SEC-registered investment adviser; however, such registration does not imply a certain level of skill or training and no inference to the contrary should be made. Securities offered through Signature Estate Securities, LLC, member FINRA/SIPC. Investment advisory services offered through SIA, 2121 Avenue of the Stars, Suite 1600, Los Angeles, CA 90067, (888) 349-3241.