The stock market regularly reacts to news about economic policy, as traders try to gauge how lawmaking shapes market behavior. Policies involving taxes or tariffs can have a direct impact on the stock market, as felt in August 2019 with volatile trading resulting from the U.S. trade war with China. Here are ways that politics can affect the stock market.
News that Swings the Market
Military action is one of the most predictable forms of politics that moves markets. Traditionally, defense contractors and oil companies do well during times of war. Many times oil production schedules cross over into politics. Overall, however, stocks usually perform better in periods of economic stability.
Considering Presidential Elections
Although presidential elections can affect the stock market, there have been misconceptions in the past that the stock market declines in the first year of a new administration. The stock market, which rebounded throughout the Obama years, continued its upward climb during the first few years of the Trump administration. The market had been plunging throughout 2008. With Obama’s election, markets continued collapsing until the Spring of 2009 before turning around.
Historically Democratic presidents have experienced more significant gains than Republican presidents, despite the perception that the GOP is the more business-friendly party. The Dow Jones Industrial Average has delivered an 82.7% return during Democratic administrations versus 44.7% during Republican terms. Trump’s tax cut for corporations helped drive stocks up as companies used the money to reinvest in themselves.
How Political Parties Affect Stocks
Major differences exist between political parties concerning the stock market. Republicans tend to be for more increased military spending, in which defense contractors depend on big military contracts. Solar and renewable energy companies have a better shot at getting big contracts and legislation on tax credits during a Democratic administration.
Stocks were booming during the Clinton administration of the nineties, but it’s important to remember many of the high flying dot com companies came crashing down and never recovered. The commercialization of the web during the Clinton years led to many new companies, but deregulation also played a role in the market’s eventual collapse in the early years of George W. Bush. One of the Bush policies that led to the 2008 crash was loosening lending requirements for first time home buyers.
About The Author
Yuri Vanetik is a Political Coalition Builder, Private Investor, Philanthropist, and Entrepreneur that has become known as an expert in business and policy. In addition to working as the leader of Vanetik International, LLC, a corporate management consulting firm, for nearly 25 years of experience, Vanetik has also worked on several political campaigns. In addition to his political work in California, he was also in the state finance leadership for Late Senator McCain’s Kitchen Presidential Campaign. Yuri Vanetik has been featured in a variety of notable publications, including the Wall Street Journal, California Business Journal, Bloomberg Law, and Forbes.