Republican vs. Democrat: How the 2024 Election Could Impact the Stock Market

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The US presidential election is right at our door as it is set to be held on November 5, and investors are looking at how the outcome of the elections could impact the stock market. Democratic party nominee current vice president Kamala Harris, and Republican party nominee former president Donald Trump are battling for the position of president of the United States, and each candidate and their respective parties would have significant differing impacts on the stock market. 

Historical Trends

Historically, different political parties have nearly always impacted the stock market in one way or another. Investors often react to promises, policies, and polls heightening volatility. Furthermore, the presidential candidates Trump and Harris have laid out different ways to handle economic issues such as inflation and interest rate hikes. Their differing economic policies result in different market reactions, and this article will dive into these policies and analyze its effects on the stock market. 

It is important to understand that the US stock market generally performed well under any party. In addition, potential external factors that can’t be anticipated can also heavily influence the stock market. With those considerations in mind, the stock market historically favored a Democratic party with a mixed congress, giving an average annualized return of 15.72% on the S&P 500.

Harris’s Economic Policies

One of Kamala Harris’s intended policies is to raise corporate tax from the current 21% to 28%. According to Reena Aggarwal, this increase could potentially hinder profits and potentially hurt stock market growth. However, Aggarwal pointed out that it is still quite unclear if the policy will become a law. According to Callie Cox, Kamala Harris won’t enact changes that will have lasting effects on the stock market, and long-term investors shouldn’t worry about politics. Aggarwal also said that the renewable technology sector would benefit from Harris’s policies.

Trump's Tax Cuts and Economic Strategy

On the other hand, Donald Trump and the Republican party intend to extend corporate tax cuts during his first year in his term, he also intends to loosen regulation on corporations potentially increasing corporate profits which can lead to a positive return in the first year of his term. However, proposed tariffs of 20% could increase prices domestically which can become a potential pain for companies. During Trump’s term, he pressured the Federal Reserve to lower interest rates, and with the current interest rate cuts and the additional pressure from Trump, we will potentially see rapid interest rate cuts. Low interest rates benefit low-cap stocks that are paying off debt, as well as the regional banking sector. 

Conclusion: Resilience Amid Policy Differences

Although differing economic policies influence the stock market in one way or another, the US stock market has historically shown resilience and performed well under both Republican, and Democratic parties. But looking ahead, Harris and Trump’s differing economic policies could both present distinct impacts on the stock market. Harris’s proposed higher corporate tax may lead to short-term losses for the stock market, while on the other hand, Trump’s proposal of lowering corporate tax could propel corporate revenue and potentially boost the stock market in the short-term. On the other hand, proposed tariffs and pressure for fast interest rate cuts by Trump could lead to higher domestic inflation hurting the stock market. Ultimately, these policies would create heightened short-term market volatility.

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Works Cited

Zahn, Max. “What Would a Kamala Harris or Donald Trump Victory Mean for the Stock Market?” ABC News, ABC News Network, 22 Oct. 2024, abcnews.go.com/Business/kamala-harris-donald-trump-victory-stock-market/story?id=115018990. 

McKenna, Kristin. “Stock Market Performance by President (in Charts).” Darrow Wealth Management, 29 May 2024, darrowwealthmanagement.com/blog/stock-market-performance-by-president-in-charts/. 

Vanessa Williamson, Ellis Chen, et al. “Candidates’ Contrasting Plans for the Federal Reserve.” Brookings, 24 Oct. 2024, www.brookings.edu/articles/candidates-contrasting-plans-for-the-federal-reserve/.