In today's developments, Donald Trump Clinches Presidential Victory; However, Another Contender Emerges Triumphant
In today's developments, Donald Trump Clinches Presidential Victory; However, Another Contender Emerges Triumphant
For several months, Election Day has been a significant event for America, as well as for Wall Street. While not every event happening in the White House or Capitol Hill directly impacts the stock market, the votes cast by Americans throughout the nation ultimately decide who will be drafting our laws and shaping our fiscal policies in the forthcoming years.
Though the composition of Congress carries significant importance, most individuals focus more on who takes the Oval Office. At 5:42 a.m. ET, according to Associated Press (AP) projections, former president and Republican Party nominee Donald Trump has secured the presidency.
Trump retakes the White House
As per AP's early Wednesday calls, Donald Trump leads with a 277-to-224 Electoral College vote advantage over Vice President and Democratic Party nominee Kamala Harris. To secure victory, only 270 votes are required.
Though some of Trump's campaign proposals give economists and investors concerns, such as implementing tariffs on goods entering the U.S to bolster domestic production and make American-made goods more price-competitive - with a 60% tariff proposed for Chinese imports and 20% for other nations - the downside risk is that tariffs might increase costs for American consumers and businesses, resulting in strained trade relations with major economies such as China and our allies.
During Trump's first term in the Oval Office, investors barely had any criticisms. The remarkable Dow Jones Industrial Average (^DJI -0.53%), distinguished S&P 500 (^GSPC -0.54%), and innovative Nasdaq Composite (^IXIC -0.66%) respectively capitalized 56%, 67%, and 138% in these periods.
With the Republicans reclaiming the Senate and Trump winning, the possibility of higher taxes for corporations has been removed. Furthermore, Wall Street's most influential businesses will likely continue their extensive share buyback programs.
However, the true winner of the election night is Wall Street's investors.
Election Night's ultimate victor: Wall Street investors
Although AP has yet to declare seven Senate seats and 59 House races, the uncontested election night champion is Wall Street's investors.
Approximately three years ago, Integrity Wealth Management president and Forbes contributor Mike Patton released data analyzing the average annual returns of the Dow Jones Industrial Average from 1946 to 2020 in various political scenarios. For instance, when Republicans hold the majority of Senate seats, the Dow's average annual return reached 11.3%, noticeably higher than the 6.3% during Democratic control.
Comparatively, Republican presidents directed an average annual return of 7.4% in the Dow over the past 75 years, just below the 9% annualized return experienced during Democratic presidencies.
Regardless of which party controlled the House, Senate, or White House, Patton's data revealed that the average annual returns in the Dow ranged from 6.3% to 12.9%.
Researchers at Retirement Researcher examined the S&P 500's average annual returns from 1926 to 2023. In the 34 years where a Republican was president, divided Congress produced a 7.33% annual return, but when Republicans controlled government completely, the S&P 500 averaged a remarkable 14.52% annual return.
Though data indicates that certain scenarios have traditionally been more favorable to Wall Street, the most crucial takeaway is that stocks can perform well under any political landscape.
Perhaps the most enlightening investment study comes from Crestmont Research. Every year, Crestmont updates a data set tracking the S&P 500's rolling 20-year total returns, with dividends, dating back to 1900. Even though the S&P didn't emerge as an index until 1923, researchers were able to trace its components to other indexes, resulting in 105 distinct rolling 20-year periods (1919-2023).
Crestmont Research found that every single one of these rolling 20-year periods generated a positive annualized total return. In simpler terms, if you had, hypothetically, invested in an S&P 500 tracking index at any given point since 1900, you would have made a profit 100% of the time.
In more than half of these 105 rolling 20-year periods, the annualized total return surpassed 9%.
Though elections capture everyone's attention, the real MVP for Wall Street investors is: time.
Despite Trump's proposed tariffs potentially increasing costs for consumers and businesses, leading to strained trade relations, investors largely appreciated his first term due to the significant growth of major indices such as the Dow Jones Industrial Average, S&P 500, and Nasdaq Composite. With Trump's re-election and the Republicans retaining the Senate, the possibility of higher taxes for corporations was eliminated, encouraging continued share buyback programs.
Understanding historical data, market studies show that regardless of the political landscape, stocks tend to perform well. For instance, researchers found that the Dow's average annual return was 11.3% under Republican control of the Senate, outperforming the 6.3% average during Democratic control. Similarly, the S&P 500 averaged a remarkable 14.52% annual return when Republicans controlled government completely. Thus, while elections may capture everyone's attention, the true MVP for Wall Street investors remains the power of time.