How Will Stock Markets React to the 2024 Presidential Elections — and What Should Investors Watch for?

With a likely repeat of the 2020 election, I am often asked, “What happens if a particular candidate wins?”

In the very short run, it can have a notable impact, like the night Donald Trump won in 2016. The futures market fell precipitously after he was announced the winner, but by the time the markets opened the next morning, they had reversed course and were up.

However, in the longer term, we believe investors should focus more on what sectors will outperform, possible tax changes, who controls Congress and whether Jerome Powell gets reappointed as Federal Reserve Board Chair.

Interestingly, if Donald Trump does win again, this break between presidential terms hasn’t happened in America since President Grover Cleveland was reelected in 1893.  It is highly unusual for presidents to skip a term of office and then get reelected.

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Energy and mergers & acquisitions

The first companies to benefit under a second Trump presidency would probably be the oil and gas producers.

Trump would most likely roll back environmental regulations, allowing for increased production and permits on federal lands. The U.S. would become an even larger energy exporter than it is now. Trump would also be more pro-business and less opposed to corporate mergers and acquisitions. The potential surge in M&A activity would benefit investment banks in the financial sector and Wall Street in general.

Taxes

The Tax Cuts and Jobs Act of 2017 is set to expire at the end of 2025. If this happens, the current top rate of 37% will go back up to 39.5%, and the current standard deduction of $13,850 would go back down to $6,500 for individuals and from $27,700 to $12,700 for married and filing jointly.

The most significant changes in 2017 had to do with the estate tax exemptions. These doubled from $5.49 million to $13.61 million today. This means couples don’t have to pay any estate taxes unless their estate exceeds the $27.22 million threshold. After December 31, 2025, these exemption limits expire automatically, and today’s levels will drop by 50%. 

Control of congress

The party that controls the House and Senate gets to set the legislative agenda and determine what bills come to a vote. The most recent example of this is the latest bipartisan efforts to pass legislation regarding aid to Ukraine and Israel.

Mike Johnson, Speaker of the House, hasn’t brought a bill to the floor because Donald Trump thinks the U.S. should stop providing foreign aid unless it is in the form of a loan. Politically, it seems near-impossible to get anything done in Congress. However, if Trump gets reelected and the Republicans control both the House and Senate, the 2017 tax cuts will most likely be made permanent and not expire on December 31, 2025.

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Federal reserve board chair

Arguably, the Federal Reserve Board Chair is the second most powerful person in the world, right behind the president of the United States. The chair sets interest rate policy, which impacts short-term interest rates. These rates have a major impact on housing prices, mortgage rates, and the interest rate on risk-free investments such as treasury bills and CDs.

Jerome Powell is the Chair of the Federal Reserve Board today. He was originally appointed by Donald Trump in 2018 and reappointed by Joe Biden in 2020. His term ends in 2026, and Trump has made it perfectly clear he won’t reappoint Powell to a third term. Biden hasn’t publicly indicated one way or another.

Powell has done a good job of bringing inflation down from over 9% in the spring of 2022 to just over 3% today by rapidly increasing short-term interest rates. The next move for the Federal Reserve is to cut rates. If Powell is not reappointed, we believe the markets won’t like the uncertainty of a new untested chair at such a critical time for the economy, inflation and new bull market.

Who becomes President is important to the country and the world, but the markets tend to do well regardless of who is elected. As such a magnificent discounting mechanism, the stock market tends to adjust and reprice rather quickly by making bets on specific sectors, the direction of interest rates, tax law changes and who will be the next Federal Reserve Board Chair, regardless of who lives in the White House. Feels like Groundhog Day, doesn’t it?

Fred Taylor is a Partner, Managing Director at Beacon Pointe Advisors, LLC. The information contained in this article is for general informational purposes only. Opinions referenced are as of the publication date and may be modified due to changes in the market or economic conditions and may not necessarily come to pass. Forward-looking statements cannot be guaranteed. Past performance is not a guarantee of future results. Beacon Pointe has exercised all reasonable professional care in preparing this information.