The next election is shaping up to be more than just a political event for many Americans.
A significant number of them feel that the results could deeply influence their financial futures, including their assets, retirement plans, investments, expenditures, and reserves for emergencies.
The prevailing thought is: “If my preferred candidates win, I’ll likely be wealthier, retire sooner, and spend more liberally. If they lose, I’ll need to tighten my belt, extend my working years, and save more aggressively for potential emergencies.”
But is there any truth to these concerns?
Largely, no, particularly in relation to how the stock market’s performance might impact retirement savings.
“The impact of election outcomes on future investment returns is minimal to nonexistent,” explains Kevin Jestice, senior vice president at Nationwide Investment Management Group. “Generally, markets have shown growth over time irrespective of the political party in power.”
Nonetheless, a Harris Poll survey conducted for Nationwide—which included nearly 2,500 adult investors with at least $10,000 in financial assets and around 600 advisors between August 26 and September 13—found that 55% of investors believe the upcoming presidential and congressional races will have a more significant effect on their retirement strategies than the market’s own performance. This is a 10% increase from the previous year, according to Nationwide.
It’s not just idle concern; some Americans are taking preemptive steps based on their fears. Over a quarter of non-retired investors plan to adopt more conservative investment strategies leading up to the election, and 18% intend to diversify their investment portfolios, the Nationwide survey reveals.
However, Jestice warns that such reactionary shifts to a more conservative investment stance due to election anxiety will “likely yield lower returns” over the long term.
Some are even bracing for more severe outcomes if the candidates they oppose win. About one-third suspect a recession might occur within the next year. Half expect a rise in the cost of living, and 61% think the presidential election results will have a “direct, immediate, and lasting effect on stock market performance,” a Nationwide report on the survey indicated.
“Supporters of Trump are more likely to anticipate tax increases under (Vice President) Harris, along with more federal legislation affecting consumers, or regulations targeting manufacturers who will pass increased costs onto consumers,” the survey notes.
Experts suggest that many investors are viewing their financial prospects through a lens of fear and anxiety rather than focusing on economic and market fundamentals.
“Most of the financial opinions during an election year are driven by emotions rather than any rational basis,” states Jamie Cox, managing partner at Harris Financial Group.
He advises that people should concentrate on “corporate earnings and human ingenuity,” emphasizing that stock prices are primarily influenced by company profits, which have historically increased over time, regardless of which political party holds office.
Does the President Really Influence the Stock Market?
Since 1960, the S&P 500 index has seen average annual returns of 12.5% during Democratic presidential terms and 5.2% during Republican ones, according to a Nationwide white paper. However, Cox cautions against attributing such discrepancies solely to the presidency.
A study by Retirement Researcher, covering the period from 1926 to 2023, shows the S&P 500 performed best—with an average annual rise of 16.6%—under a Democratic president with a Republican or divided Congress. Cox notes that divided governments tend to pass fewer significant bills, a situation preferred by markets as it often means lower chances of tax hikes or legislative uncertainties.
Yet, the S&P 500 also showed strong performance under unified Republican and Democratic governments, with annual returns averaging 14.5% and 14% respectively, during the same period, the study indicates.
The partisan composition of the White House and Congress may not be as crucial as many think.
“The stock market is more affected by underlying economic conditions than by which party is in power,” Jestice points out. “It’s an oversimplification to declare one party as better for the market than another.”
The Impact of Social Media on Political Perceptions
Consumer confidence has consistently been higher among those whose preferred candidate is in office, according to the University of Michigan’s monthly consumer sentiment survey. However, the increasingly polarized political climate, amplified by social media and constant news coverage, has intensified the connection between Americans’ political leanings and their financial outlooks.
“The echo chamber effect is more pronounced,” Cox observes.
A Morning Consult survey for Empower, involving 2,200 adults in July, found that a quarter of Americans believe the election results will decide “whether I’m wealthy or not.” More broadly, 42% feel their financial situation will be better or worse depending on the election’s outcome.
Thirty percent think the presidential election’s winner will influence their work duration and retirement timing; 34% say it will affect their spending habits; 41% plan to increase their emergency savings; and 23% intend to invest more in stocks.
Neither the Nationwide nor the Empower surveys specifically mentioned Trump or Harris.
Ultimately, while consumer confidence influenced by election results can affect spending and thus the economy and markets, Cox notes that with Americans divided in their political support, such effects typically balance each other out and have minimal overall impact.
Moreover, the election may indeed lead to significant policy changes that could influence markets and economic growth. However, both Cox and Jestice emphasize that such shifts are usually less impactful than corporate earnings or decisions by the Federal Reserve on interest rates. They advise investors not to rush their financial decisions.
“There’s ample time to adjust,” Cox reassures.
Jestice adds, “Don’t panic.”
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Passionate about analyzing economic markets, Alice M. Carter joined THE NORTHERN FORUM with a mission: to make financial concepts accessible to everyone. With over 10 years of experience in economic journalism, she specializes in global economic trends and US financial policies. She firmly believes that a better understanding of the economy is the key to a more informed future.