When it comes to the economy and the stock market, there are a multitude of factors that can affect growth [and] politics perhaps has a more significant impact on the stock market than you may realize….In this two part series we examine possible winners and losers if a Democrat or Republican is elected president. To begin, let’s analyze how the stock market has performed historically during Democratic administrations.
Is a Democratic President Better for the Stock Market Vs a Republican?[Since] President Obama took office in January 2009…the general trend of the stock market has been bullish. The S&P 500 was at a low of 666 – a bit of an unlucky number – in March 2009. Since then, the S&P 500 has generally been on an upward trend, reaching a record high of 2,134.72 on May 20, 2015.
…President Obama’s policies [may not] deserve all the credit for the growth in the economy [as] it could well be due to luck or the timing of his term but…according to S&P Capital IQ, stock market returns have historically performed better during Democratic administrations.
- Since 1945, the S&P 500 has averaged 9.7% gains with Democrat presidents
- compared to just 6.7% gains with Republicans.
- there have been 7 recessions and 16 bear markets during Democratic administrations [and] while that may not sound good,
- it’s better than the 14 recessions and 18 bear markets that have occurred under Republicans.
- Also, former Democratic President Bill Clinton also turned the largest-ever federal budget deficit into the largest surplus while he was in office.
Source: S&P Capital IQ, CNN Money
It’s important to note, however, that during Republican President Gerald Ford’s term between August 1974 and January 1977, the S&P 500 had impressive 18.6% average returns each year. Ford came into office after Nixon resigned and the country was in the middle of a recession. Ford’s exit also came before the hyperinflation fright of the 1970s and the next oil crisis.
Source: S&P Capital IQ, CNN Money
Sectors That Could Outperform with a New Democratic President
Now let’s examine which sectors…could be worth watching if the Democratic Party stays in office for the quickly approaching new presidential term.
Democratic front-runner Hillary Clinton is keen on health care reform.
- If Clinton is elected, many analysts anticipate further development of Obamacare. This could bode well for health care stocks, which could experience higher participation rates.
- If Democrats increase funding for the Affordable Care Act, that could likely benefit multiple segments such as managed care facilities, hospitals, insurance providers, and medical technology companies.
- Increasing usage of electronic patient records, improving benefit management systems,
- and greater access to preventative care could also help make universal coverage more affordable and cost-effective…
Both Clinton and Sanders advocate raising the minimum wage, which in turn would help lower income families afford basic necessities. The widening income gap is quite a focal point of the election. The middle class has been shrinking while the lower class has been increasing, affecting many American households. If lower income families are able to start earning higher wages, consumer staples companies (ex. food, beverages, household goods) may experience an increase in sales…
Alternative Green Energy
Democrats often win the hearts of environmentalists for their passion and focus on clean, renewable energy…such as wind, solar, hydropower and geothermal alternative energy sources. Renewable energy has been on the rise and is predicted to continue it’s upward mobility. Back in 2011, renewable energy generation accounted for 20% of global energy generation. The [I]nternational Energy Agency forecasts it to reach 25% of gross power generation in 2018. As the fastest-growing power source, stocks in this sector are worth watching….
What Might Suffer If A Democrat Takes Office?
The Clintons have fought to lower pharmaceutical prices for a long time. Back in 1992, former President Bill Clinton made a pledge to stop drug companies from price gauging by removing tax breaks for companies that increased prices by more than the Consumer Price Index’s measure of inflation. Hillary Clinton’s campaign announced on September 21, 2015 they plan to “hold the pharmaceutical industry accountable and rein in drug costs.” The stock market reacted quickly after her announcement and investors witnessed as much as a 6.4% drop in the S&P Pharmaceutical Industry Index within the next five days…
Companies Seeking Corporate Inversion
Hillary Clinton is adamantly opposed to companies seeking to re-incorporate overseas for the primary purpose of reducing tax liability on income earned outside the U.S., a restructuring known as corporate inversion. She has pledged to impose
Higher taxes are expected if either Bernie Sanders or Hillary Clinton is elected. Depending on your income, you may end up owing more taxes next year.
- Sanders, if elected, plans to:
- raise the top three tax rates,
- increase capital gains and estate taxes,
- extend Social Security taxes,
- enforce a new 0.2% payroll tax on every worker to finance paid family leave payments.
- Clinton’s tax plan is a more middle ground version of Sanders’ where taxes would largely stay the same for most Americans if she were elected.. She wants to:
- raise capital gains and estate taxes,
- close tax loopholes on the wealthy,
- and create a 4% surtax on income above $5 million.
Be on the lookout for part 2 of this series, which examines possible winners and losers if the Republican party takes over the White House in the upcoming election.
Disclosure: The original article, by MotifInvesting.com, was edited ([ ]) and abridged (…) by the editorial team at munKNEE.com (Your Key to Making Money!) to provide a fast and easy read.
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