Which Political Party Is Best for the Stock Market?

With an election close at hand, Americans will soon be asked to make a choice between two starkly different candidates and political parties. Though the outcome of the election will affect everything from America’s foreign policy to questions over the balance between state and federal power, the economy is a prominent highlight for both parties and many voters.

This raises the question of which political party is better for the stock market going into the 2024 election. To answer this, let us examine the economic policy platforms of Donald Trump and Kamala Harris on a point-by-point basis. It should clearly be noted up front, though, that while these candidates are the de facto leaders of their respective parties, their views may not necessarily represent those held by other party candidates or members.

Tax Policy

Beginning with tax policy, it’s likely that the stock market could see a rapid boost from one of Trump’s signature proposals, namely an additional cut to corporate tax rates.

Trump has suggested a 15% tax rate for companies that manufacture their products domestically, down from the current 21% rate. This lower tax rate is likely to spur growth and produce a stock market upswing similar to what was seen when then-President Trump signed corporate tax cuts into law in 2017.

Harris has espoused an opposite view, calling for the corporate tax rate to be restored to 28%. This is more likely have the opposite effect of an additional tax cut by creating a headwind and causing stocks to fall as post-tax net incomes fell under higher tax rates.

It’s also worth noting that Harris has historically supported the idea of taxes on unrealized capital gains for extremely high net-worth individuals, a notion that is potentially very disruptive to the normal functioning of the stock market. Though this idea has gained some traction in the Democratic Party in recent years, it’s fairly far outside of mainstream politics in America and seems unlikely to pass in Congress.

The reason it’s so unlikely is that if say an Elon Musk was forced to sell a good chunk of his Tesla shares, the market is likely unable to absorb the liquidity, creating a large price drop as supply overwhelms demand. Extrapolate that across hundreds of billionaires and the consequences to the stock market are potentially catastrophic, risking a 1987 style crash, or worse. 

Deficits and Debt

Another extremely important aspect of the current campaign will be each party’s approach to government spending.

A long-term budget outlook developed by the Congressional Budget Office suggests that if current trends continue, America’s deficit could be as high as 8.5% of GDP by 2054.

The resulting high debt loads are projected to saddle the government with large debt service costs, likely creating a drag on economic growth as more and more money is allocated to interest payments versus productive needs.

As such, the amount each candidate would add to the deficit is extremely important for America’s long-term economic outlook. While neither candidate’s economic plans are expected to reduce or even hold the line on the current deficit, there’s still a fairly stark difference between them.

According to researchers at the Wharton School of Business, Trump’s proposals would add $4.1 trillion to the deficit over the next 10 years after accounting for growth effects. Though Harris’ plans would also increase the deficit, the number falls to $2 trillion over the same period under her proposals. 

Trade Policy

Interestingly, trade policy has become a central facet of the current election. Trump, famously supportive of tariffs as a tool for supposedly balancing trade while generating revenue, has proposed blanket tariffs of 60% on Chinese goods and 10% on imports from the rest of the world.

The Harris campaign has criticized these measures, attempting to frame them as a “national sales tax” due to the negative impacts tariffs have on consumers by raising prices on goods and services.

Though Trump’s tariff regime would likely be disastrous for both consumers and businesses and disrupt America’s trade, it’s worth noting that Harris doesn’t have particularly strong pro-trade credentials either.

The Biden administration has kept Trump’s earlier tariffs in place while also putting additional protective measures in place against goods such as Chinese electric vehicles.

Though far from a free trader, Harris seems to stick to a more traditional view of tariffs as targeted tools meant to be applied to specific goods instead of blanket revenue-generating schemes.

Regulatory Environments

Finally, let’s consider the regulatory policies of the two candidates. Trump has espoused cutting regulations and red tape, especially in the energy sector. Utilities, healthcare and auto manufacturers are more likely to be beneficiaries of the looser regulatory regime Trump envisions.

Harris has made her own arguments for paring back certain regulations, though her plans are targeted much more at small businesses.

A key part of her economic plan is a looser set of rules for small business loans, a policy that would likely have moderately beneficial economic impacts by generating more small business activity.

Which Political Party Is Best for the Stock Market?

History and data show that the the stock market has yielded its best returns in periods with a Democratic president and a divided Congress.

As you can see, the answer to which party is better for the stock market isn’t quite black-and-white. A Republican victory is more likely to see short-term spikes in share prices on the promise of lower corporate taxes and deregulation.

A victory for Democrats, on the other hand, would likely lead to better long-term outcomes in terms of trade and fiscal policy, potentially creating an environment for lower deficits too. Admittedly, deficits are expected to rise under both administrations to really it’s the pace of growth that is forecast to be lower according to some estimates under a Democrat regime.

Though neither party is particularly pro-free-trade or in favor of balancing the budget, the disruptions caused by Trump’s tariff proposals and the continued expansion of the deficit would likely become long-term structural headwinds for the stock market. With that said, the Biden-Harris administration didn’t modify Trump’s tariffs so the two parties may largely be in lockstep here when it comes to actions, even their claims differ.

A final point that’s interesting to note and will come as a surprise to many is that the stock market has historically yielded its best returns in periods with a Democratic president and a divided Congress. This could once again prove to be the best outcome, as a Republican stronghold in at least one house of Congress would likely temper more radical proposals like the taxation of unrealized capital gains while avoiding the disruption of massive tariffs pushed through by the executive branch.

---

The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.