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For investors, does it matter who wins the US election?

Stocks may well rise during a second Trump administration but autocracy not good for investors as healthy markets require healthy democratic institutions

Traders work on the floor of the New York Stock Exchange: Stocks rose both under the Obama administration and under Donald Trump's previous regime. Photograph: Spencer Platt/Getty Images
Traders work on the floor of the New York Stock Exchange: Stocks rose both under the Obama administration and under Donald Trump's previous regime. Photograph: Spencer Platt/Getty Images
Proinsias O'Mahony's picture
Proinsias O'Mahony
Mon Nov 04 2024 - 06:00

Larry Fink of BlackRock, the world’s largest asset manager, is “tired of hearing this is the biggest election in your lifetime”. The reality, says Fink, “is over time it doesn’t matter”.

Is he right?

Ordinarily, yes. With stock returns, there are many more important factors than politics. Stocks usually rise no matter who is in power, so professionals routinely advise investors not to fret about politics. Some republicans believed Obama would be terrible for stocks. Some Democrats panicked when Trump was elected in 2016.

Nevertheless, stocks rose in both instances. As Dimensional Fund Advisors founder David Bloom notes, “shareholders are investing in companies, not in politicians”.

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Stocks may well rise significantly during a second Trump administration, and many on Wall Street are enthused about possible corporate tax cuts and deregulation. Nevertheless, Fink’s nonchalance is misplaced.

Trump is no ordinary politician. Tariffs, trade wars, huge budget deficits, increased inflation expectations, further deglobalisation, mass deportations – one sees why 23 Nobel economists recently penned a letter endorsing Kamala Harris.

Worse, Trump’s authoritarian instincts are deeply problematic. As Financial Times columnist Martin Wolf warns, Trump “is at the very least ‘fascistic’ and can be credibly called a fascist”.

Autocracy is not good for investors, with research showing a strong link between democracy and stock returns. Capitalism relies on independent courts and institutions to ensure fair rules and support a stable market environment. Replacing civil servants with political appointees could endanger reliable reporting of economic data.

Additionally, investors should be alarmed by Trump’s desire to end the Federal Reserve’s independence and give the president influence over rate policy.

Now, some argue Trump’s bark is worse than his bite.

Even if there is institutional erosion, it might unfold slowly, so stocks may do just fine under a Trump presidency. A bad president can still be good for stocks. Still, ignoring political risks may no longer be wise; healthy markets require healthy democratic institutions.

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