When it comes to discussing the investment implications of elections, there can often be a lot of partisan noise that doesn’t lead to any real insights. Supporters of President Biden, for example, may claim that his economic decisions have led to strong job growth but also high inflation due to supply chain issues post-COVID. On the other hand, his detractors may argue that the inflation is avoidable and the job growth is artificially inflated by employers refilling positions after the pandemic.
However, when we take a step back and look at the bigger picture, it becomes clear that regardless of the specific policies of the current administration, equity shareholders have reasons to celebrate. Looking back at the aftermath of the 2008 financial crisis, there were fears that the regulatory environment would become much stricter, with a shift towards more support for labor and less for shareholders. The Dodd-Frank Act was seen as a sign of this changing tide.
But as time passed, it became evident that these expectations were off the mark. The Dodd-Frank Act, while imposing some new regulations, did not fundamentally alter the landscape for shareholders. The anti-Wall Street sentiment that was prevalent post-crisis also faded away, with little impact on the capital markets in the long run.
Similarly, antitrust actions under different administrations have followed a similar pattern of tough rhetoric followed by minimal actual enforcement. CEOs of major corporations have even become celebrities in their own right, enjoying widespread popularity. This shift in sentiment towards capitalism has implications for the stock market, as public support for corporations remaining profitable is good news for shareholders.
In essence, the argument here is that elections, while important for many reasons, do not bring about significant changes in the economic landscape that would have a drastic impact on stock prices. Despite the political rhetoric about reform and redistribution, the core economic principles that have supported stock market returns remain largely unchanged.
It’s worth noting that there are always exceptions, such as the potential impact of drastic policy changes like imposing high tariffs on imports. However, in general, the stability of the economic system and the underlying support for capitalism have been consistent drivers of stock market performance over the years.
So, as we head into the upcoming election, it’s important to consider all the various issues at stake. But when it comes to the performance of equities, it’s likely that the status quo will prevail, regardless of who wins the race. The enduring support for capitalism and corporate profitability provides a solid foundation for investors to feel optimistic about the future of the stock market.