
October 2024
Issue #4
Who is better for the stock market?
THE BIG 3
Election History
Mr. Market does NOT care who is in office, if policy is predictable.
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Harris Wins?
Tax changes and more variety of stimulus.
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Trump Wins?
Policy shifts and a shakeup in government spending.
Election History
It’s the economy, stupid!
We’ve heard those words uttered countless times over the decades. This is especially true during presidential elections.
Not surprisingly, each party champions differing policy. Spending and social prosperity are at the forefront of most Democrat platforms. Stewardship and capitalism are normally high on the list for Republicans. Since WWII, both strategies have worked. As one might imagine, high government spending stimulates both GDP growth and inflation. This favors Democrats. Republicans have traditionally seen an advantage on the cost of living front. This is why there is a fairly broad perception that Republicans are better for the economy. Interestingly, Democrats are better for the market on average; however, Republicans are the winners when looking at the median.
While this seems convoluted, the takeaway is simple. Over time, the market doesn’t care who is in control.

Harris Wins
While Vice President Harris has repeatedly said she is going to be different than President Biden, we have our doubts. The status quo will likely remain in terms of stimulus and creative government subsidies. Where Harris will likely differ the most from her predecessor will be tax policy. Taxes are nearly guaranteed to increase. How much remains to be seen, but this will help the deficit to some degree. Moreover, the sustained levels of government spending will aid in short-term consumption and maintain GDP growth. She will trade this growth for long-term stability. In market terms, volatility will be muted in government subsidized sectors, while consumption driven sectors (70% of the economy) will only enjoy growth until the stimulus stops – which it eventually will.
Trump Wins
Our breakdown of this scenario may not be popular, but it is rooted in research. Donald Trump plans to shakeup the system. Without the possibility of reelection to worry about, a Trump presidency would likely be focused on tearing down broken systems and rebuilding them. Government spending would be a major priority and require a substantial overhaul. Agriculture, pharmaceuticals, and defense would take the brunt of this. A shift to aggressive tariffs could create short-term pain, but they would also create a more competitive domestic landscape. Depending on how aggressively his administration would go after spending waste, a recession seems likely in the first 12 months of his term. There is an equal likelihood of a pricing reset in housing. These short-term challenges could very well result in significantly lower inflation and a meaningful rebound in the second half of his term. Historically, you can draw parallels from the early stages of the Reagan economy. The groundwork he laid set the stage for further improvements in government efficiency, culminating with the Clinton administration’s incredible feat of balancing the federal budget.

The Bottom Line
Not to belabor the point, but the market ultimately doesn’t care who is president. Over the next four years, the US will grow regardless. The question we face is whether there will be immediate pain followed by a more sustainable recovery, or if we will continue on our merry way until we don’t have a choice but to create pain. This is optimistic and pessimistic at the same time. Every election feels this way. Every election has also resulted in the United States growing and flourishing in one way, shape, or form. That is what makes our country special.
Any opinions are those of Alexander Leonida. The information contained in this document does not purport to be a complete description of the securities, markets, or developments referred to in this material. There is no assurance any of the trends mentioned will continue or forecasts will occur. The information has been obtained from sources considered to be reliable, but CFG does not guarantee that the foregoing material is accurate or complete. This newsletter: (a) is not an official transaction confirmation or account statement; (b) is not an offer, solicitation, or recommendation to transact in any security; and (c) may not be retransmitted to, or used by, any other party. Investment products are: Not deposits. Not FDIC or NCUA insured. Not guaranteed by the financial institution. Subject to risk. May lose value.
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