Former President Donald Trump has won the 2024 election, entering office on a wave of support for Republican candidates.
NBC News reports that the previously Democratic-controlled Senate will have a Republican majority. It’s too early to tell which party will win the majority in the House of Representatives, but if Republicans retain control, the party will be able to set the agenda that Trump laid out on the campaign trail.
For stock investors, the occupant of the Oval Office doesn’t matter much. After all, the S&P 500 has risen during 17 of the last 20 four-year presidential terms.
But some investors may be watching the pending House races closely.
“What tends to do better for investors is not so much who’s in the White House. It’s the makeup of Congress,” says Ryan Detrick, chief market strategist at the Carson Group.
Specifically, stocks tend to do better with a divided government. From 1951 to 2023, the S&P 500 has returned an annual average of 8% under one-party rule, compared with an average gain of 9.9% when different parties control the presidency and at least one house of Congress, according to data from provided by Carson. The group.
A divided Congress in particular tends to be good for investors, with average annual gains of 15.7% under Democratic presidents and 13.7% under Republican presidents.
If the S&P 500 ends 2024 higher than the previous year (it’s currently about 25%), it will mark 14 consecutive years of positive returns in separate Congresses.
Economics drives stocks, not politics
It’s impossible to say exactly why stocks tend to perform better under divided governments, but it may have to do with the idea that gridlock prevents lawmakers from pulling levers that will have drastic effects on the economy, Detrick says.
“There’s not a lot of power one way or the other, there’s not a lot of expense one way or the other,” he says. “There are checks and balances, the way our ancestors wanted things to be.”
However, historical returns are no guarantee of future results. Moreover, the outcome of recent elections has far less impact on stock prices than the economic fundamentals that drive them. And the government that comes to power under Trump will inherit a favorable economic picture, says Detrick.
“Beginner [jobless] claims are back to their lowest levels since May, so we still have a solid labor market,” he says. “We still have a pretty solid economy that’s driven by record earnings.”
Things can change quickly, of course. A unified Congress could potentially take over and pass sweeping legislation that would “upset the apple cart,” Detrick says. But even then, you’re likely to pay attention to things that have a direct impact on the economy, like central bank policy.
“Right now, the Fed is cutting rates,” Detrick says. “It matters more to us as investors versus something that Congress is cooking up.” Low interest rates directly affect the economy, making it easy for consumers and businesses to access credit. They are also, in this case, a response to an assessment by the Fed that inflation is cooling.
In other words, if you’re stressing today about the election’s potential impact on your finances, it’s worth remembering that while politics may have an effect on your wallet, it’s far from the deciding factor in how things turn out. in the markets.
“The reality is that the economy matters more,” Detrick says.
Do you want to earn more money at work? Take CNBC’s new online course How to negotiate a higher salary. Expert instructors will teach you the skills you need to get a bigger paycheck, including how to prepare and build your confidence, what to do and say, and how to craft a counteroffer. Get started today and use coupon code EARLYBIRD for an introductory 50% discount through November 26, 2024.
Plus, sign up for CNBC Make It’s newsletter to get tips and tricks for success at work, with money and in life.
