Americans Declare: Election Results Crucial for Economic Future

The forthcoming election holds significance beyond mere politics for many U.S. citizens.

A significant number of people are convinced that the election results will heavily influence their financial well-being, impacting everything from their wealth and retirement to their investments, spending habits, and emergency reserves.

The common viewpoint is as follows: “If the candidates I support win, I’ll end up wealthier, possibly retire sooner, and spend more liberally. If they don’t, I’ll need to tighten my belt, work longer, and save more aggressively for potential emergencies.”

But is this perspective accurate?

Largely, it’s not—especially concerning stock market returns, which can affect retirement savings.

“Election outcomes generally have minimal to no effect on future investment returns,” explained Kevin Jestice, senior vice president at Nationwide Investment Management Group. “Historically, markets have trended upwards over time, irrespective of political control.”

However, a Harris Poll survey reveals that 55% of investors feel that the upcoming presidential and congressional elections will have a greater impact on their retirement plans than the market’s actual performance. This survey, conducted online by Nationwide from August 26 to September 13, involved nearly 2,500 adult investors with at least $10,000 in financial assets and around 600 advisors.

This represents a 10% increase from the previous year, according to Nationwide.

It’s not just idle concern—some Americans are taking definitive actions based on their fears. Over a quarter of non-retired investors planned to adopt a more conservative investment strategy before the election, and 18% intended to diversify their portfolios, the Nationwide survey found.

Yet Jestice warns that such cautious moves driven by election anxiety are “likely to yield lower returns” over the long term.

Some envision even graver consequences if their opposed candidates come into power. Around one-third anticipate a recession within the next year. Half expect a surge in living costs. Furthermore, 61% believe the presidential election results will have a “direct, immediate, and enduring impact on stock market performance,” a Nationwide report on the survey stated.

“Supporters of Trump are more likely to expect tax increases under (Vice President) Harris, including more federal legislation affecting consumers and regulations on manufacturers that may pass increased costs onto consumers,” the report suggests.

Experts indicate that many investors view their financial situations through a lens of fear and anxiety rather than basing their views on economic and market fundamentals.

“Most financial perceptions during an election year are driven by emotion rather than rationality,” stated Jamie Cox, managing partner at Harris Financial Group.

He suggested that people should instead pay attention to corporate earnings and human ingenuity, highlighting that stock prices are mainly influenced by company profits, which have generally increased over time regardless of political leadership.

Does the president influence the stock market?

Since 1960, the S&P 500 index has posted average annual returns of 12.5% under Democratic administrations and 5.2% under Republicans, according to a Nationwide white paper. However, Cox emphasized that it’s erroneous to solely attribute these differences to presidential influence.

From 1926 to 2023, the best performance of the benchmark index— an annualized average of 16.6%—occurred under Democratic presidents with a Republican or divided Congress, a study by Retirement Researcher noted. A divided government often results in fewer significant legislative changes, which markets typically favor over potential tax increases or uncertainties brought by new laws.

Even with unified government control by either party, the S&P 500 still performed well, returning an annual average of 14.5% and 14% under Republican and Democratic control, respectively.

It appears that the specific partisan composition of the government isn’t crucial to market performance.

According to Jestice, the stock market is more influenced by “underlying economic conditions” than by which party holds power. “It’s an oversimplification to say one party is better for the market than another,” he added.

How does social media affect political perceptions?

Consumer confidence has historically been higher when individuals’ preferred candidates are in power, as per the University of Michigan’s monthly consumer sentiment survey. However, the divisive nature of today’s politics, intensified by social media and constant news coverage, has deepened the association between Americans’ political leanings and their financial perspectives.

“The echo chamber effect has intensified,” Cox noted.

A Morning Consult survey for Empower, conducted in July with 2,200 adults, found that a quarter of Americans believe the election outcome will directly affect their financial status, while 42% said their financial comfort would vary depending on the election’s winner.

Thirty percent felt that the presidential election would determine the length of their working life and retirement span; 34% believed it would affect their spending habits; 41% planned to enhance their emergency savings; and 23% intended to increase their stock investments.

Neither the Nationwide nor the Empower surveys specifically mentioned Trump or Harris.

Ultimately, while consumer confidence influenced by election outcomes could affect spending and thus the broader economy and markets, Cox noted that with the country divided, these effects often neutralize each other and don’t significantly shift the market. Likewise, potential changes in tax and other policies might sway markets and economic growth, but Cox and Jestice argue these are generally less impactful than corporate earnings or the Federal Reserve’s decisions on interest rates. Investors, therefore, do not need to rush their financial decisions.

“There’s ample time to adjust,” Cox advised.

Jestice added, “Avoid panicking.”