In the 2024 Elections, the Republicans Secured a Victory with Unified Power: Understanding Historical Stock Trends Under Republican Rule
There wasn't a event on Wall Street in 2024 that was more anticipated than Election Day. While some elements of the legislative process have no relation to what happens in corporate America, the candidates voters select ultimately influence the financial policy that impacts businesses and affects Wall Street.
On the night of Nov. 5, the Associated Press (AP) was able to figure out that Republicans had managed to flip enough seats in the Senate to regain control in the upper house of Congress. When the votes were counted, Republicans finished with a 53-to-47-seat majority.
Just hours after the Senate had been declared for the GOP, AP had enough evidence from swing states to announce that former President Donald Trump was the new president-elect. Trump eventually amassed 312 electoral votes to Democratic Party presidential nominee Kamala Harris' 226.
Lastly, eight days after polls closed, on Nov. 13, AP determined that Republicans had won enough seats in the House of Representatives to preserve their majority. Although there are still three seats left to be decided at the time of this writing on Nov. 21, the GOP holds a 219 to 213 majority in Congress' lower house.
The GOP takes control: Here's what we know, as of now
Although Wall Street and investors finally have a clearer picture of what the incoming administration will look like, there are still far more questions than answers when it comes to the U.S. economy and stock market.
Perhaps the most significant concern with Trump back in the Oval Office is what might transpire regarding foreign trade. During his campaign, Trump advocated for a massive 60% tariff on Chinese goods imported into the U.S., with the possibility of a tariff as high as 20% on all other countries.
Tariffs, on paper, are designed to make American goods more price-competitive and encourage domestic production. However, there's the potential for trade wars to arise, which result in other countries, including American allies, imposing import tariffs of their own. Eventually, it might lead to higher costs for businesses and consumers.
Another major question that'll need to be addressed is how the unified Republican government plans to handle our country's rapidly growing national debt. Except for 1998 through 2001, the federal government has spent more than it's brought in every year since 1970. The size of these federal deficits has noticeably increased in recent years. With the GOP traditionally favoring lower personal and corporate income tax rates, it's not yet clear if we'll see meaningful improvement in the federal deficit in the years to come.
The one thing we do know is that any talk about increasing the corporate income tax rate, which was proposed by Harris during her campaign, is now off the table.
Additionally, individual income tax rate cuts, which were put into place with Trump's flagship Tax Cuts and Jobs Act, are set to expire on Dec. 31, 2025. A GOP-led federal government could make it easier to extend these cuts, or potentially make them permanent.
Here's what happens to stocks when Republicans have a unified government
But the biggest question of all, at least for the investing community, is: What does a Republican-led government mean for stocks? Statistically, the answer should give investors reason to be enthusiastic.
Recently, online education platform Retirement Researcher released a report ("Are Republicans or Democrats Better for the Stock Market?") that analyzed the performance of the benchmark S&P 500 (^GSPC 0.82%) under a variety of political scenarios over a span of nearly a century (1926 through 2023).
During the 98 years Retirement Researcher examined, the least frequent of all situations was a Republican unified government. But during the 13 years this occurred, the S&P 500 averaged a blistering-hot annual return of 14.52%. On a compound basis, a return of this magnitude can double an investor's money every five years.
While this data provides plenty of reason for optimism on Wall Street, it's only telling half the story. The truth is that all of the arrangements studied by Retirement Researcher produced strong average annual returns in the S&P 500 since 1926:
- Unified Republican: 14.52% average annual return over 13 years.
- Unified Democrat: 14.01% average annual return over 36 years.
- Divided with Republican president: 7.33% average annual return over 34 years.
- Divided with Democratic president: 16.63% average annual return over 15 years.
No matter what happened on Election Day, investors were primed for success.
But we can take this one step further for patient investors with a long-term mindset.
Every year, the analysts at Crestmont Research update a published data set that examines the rolling 20-year total returns, including dividends, of the broad-based S&P 500 dating back to 1900. Even though the S&P didn't exist until 1923, researchers were able to track its components in other indexes, allowing for back-testing to the start of the 20th century. This yielded 105 rolling 20-year periods of performance data (1919 through 2023).
Here's your requested paraphrased text:
Analysing Crestmont's findings, it was discovered that every one of the 105 20-year rolling periods delivered a positive annualized return. In layman's terms, if you'd hypothetically bought an S&P 500 index tracker at any point dating back to 1900 and held onto it for 20 years, you'd have made a profit every single time. No matter if a depression or other major disruption happened, keeping an S&P 500 index for 20 years would have yielded a positive annualized return 100% of the time.
Furthermore, more than 50 of these 20-year intervals generated an annualized total return of at least 9%, a figure that doubles an investor's money every eight years. This means that investors didn't just manage to squeeze out a profit occasionally. Patience, regardless of which party was in power in Capitol Hill, typically resulted in major gains.
Despite some uncertainties ahead for the incoming administration, long-term investors are well-prepared to succeed.
In the context of the incoming Republican-led administration, investors may be interested to know that advocating for high tariffs, such as a 60% tariff on Chinese goods, could potentially have implications for foreign trade and, consequently, business costs. Furthermore, handling the nation's rapidly growing national debt is another significant concern, as the Republican party traditionally favors lower income tax rates.
Given the historical data, investors may find reassurance in the fact that, statistically, a Republican-led government has historically resulted in strong stock market performance. In particular, the S&P 500 has averaged an annual return of 14.52% during the 13-year periods when a Republican-led government was in place. This long-term trend suggests that patient investors, regardless of which party is in power, are often well-positioned for gains.
