Economic implications of elections

Graphic via: TNP Staff

A presidential candidate's economic plan has always been a hot button issue for Americans and 2024 is no exception. According to the Pew Research Center, 81% of voters say the economy will be “very important” to their vote in this year's election. 

Those same voters may be interested to know that the president actually has less influence on the economy than is perceived and almost no effect on the market whatsoever. There are some indirect effects that can take place, but the overall state of our economy or direction of the market is not determined by the head of state. 

In an interview, NPR’s head senior political editor and correspondent, Domenico Montanaro, describes, “The economy is like a giant tanker ship that generally moves slowly.” 

“That says, to really move it, you have to do something big,” he continues. “The second thing is there's not one captain of this ship. Business decisions are really more important than government decisions, and even within the government decisions, the Federal Reserve is more important than the White House.” 

Montanaro served on former President Bill Clinton's original Council of Economic Advisers and explains that when it comes to decisions concerning the markets, Congress’s “power of the purse” holds more weight than the president elect. 

So it seems that while the chief executive and their party often take credit,or blame, for market movements during their term, they may not be as influential as they claim. According to a study done by Investopedia, no clear pattern could be found during conservative or democratic presidencies in relation to stock market performance.

The study measured The Dow Jones Industrial Average (one of the oldest and carefully followed indexes) at the start of October of a presidential election, one month prior to the election, and again at the end of March of the following year. This time span was chosen because it begins while election outcomes are still uncertain and concludes after the new congressional session has started, meaning political priorities have become more evident. 

In addition to this study, another was conducted that measured the same timeframe but during presidencies in which Congress was controlled by the same party. It was found that regardless of which party was in control, when the U.S. Government was unified, the markets performed better. 

In layman terms, for the sole purpose of stock market performance, it matters less who is president but instead matters more if the legislative and executive branches are both controlled by the same party.

Keeping all of this in mind, a party's economic policies do still have a sway on the market and should be examined when choosing which name will go on your ballot. 

As of right now, Harris’s plan heavily involves empowering the working class and addressing income inequality. A cornerstone of her approach is expanding access to affordable healthcare, proposing tax cuts for middle-income families while pushing for higher taxes on corporations and the wealthiest Americans. Harris aims to invest in infrastructure, particularly green energy, to create jobs and combat climate change, believing that these investments will also help stimulate the economy.

In addition to job creation, her plan addresses rising costs, particularly in housing and childcare. Overall, it seeks to strengthen social safety nets and reduce wealth disparities between Americans. Investors are watching closely to see how her policies, if implemented, might reshape the economic landscape. 

On the republican side, former President Donald Trump recently discussed one of the main pillars of his 2024 economic plan in a conversation with Bloomberg News’s editor-in-chief John Micklethwait at the Economic Club of Chicago. He stood by his proposal for heavy tariffs on any country importing goods into the U.S. in order to help grow the wealth of companies within our country. 

According to a speech he gave in September at the Economic Club New York, he also plans to cut taxes and reduce government regulations. He aims to increase energy production, pledging to roll back environmental measures from the Inflation Reduction Act, and focus on expanding oil drilling and refineries. Trump also proposed eliminating taxes on Social Security payments and tips, while creating a commission led by Elon Musk to cut government waste. His plan emphasizes a return to U.S. economic self-sufficiency.

However, regardless of economic plan, the president still has guaranteed power to choose key members of government organizations that can have a more direct effect on market decisions.

For example, the Commander-in-chief is in charge of appointing cabinet secretaries and trade representatives who have the power to conduct change in the markets. The president also nominates the Chair of the Federal Reserve ( the Fed), as well as other members within the Fed, an independent government organization in charge of setting monetary policies. 

This may appear as if the president has a fair amount of control over the Fed, but in reality they do not. When appointed, a board member retains their position for 14 years, longer than any president can stay in office, reducing the amount of control they could have. 

Apart from these smaller actions, the only other time the American economy would be in the hands of a president would be during significant events of distress such as war, where an abrupt shift of government spending would be necessary. 

When it comes to fiscal policy the presidential position itself can only suggest different options, but ultimately Congress has the final say. When it comes to monetary policy, the Fed has the largest influence, even though a president has the power to appoint the board. Finally, when it comes to market movement, who the president is appears to have no bearing on overall performance. 

According to Forbes, senior investment strategy director for U.S. Bank Wealth Management Rob Haworth says “the market today is more focused on corporate earnings,” when discussing market volatility in relation to election season. 

While investors may focus more on the election as it approaches, given the divide in our government, Haworth recognizes how that may affect any policy changes. 

“A key consideration for investors would be the policy direction of the winning candidate,” he says. “The biggest policy advancements occur when one party controls the White House and both houses of Congress. Based on polls, we’re a long way from that scenario at this point.”

Haworth also suggests that as November nears, candidates will start disclosing specific details from their fiscal plans, which we have seen with Harris over the last month. As that happens, investors are watching and waiting, prepared to react accordingly to whatever 2024’s election brings.