No matter who wins the upcoming election, the stock market will likely see some stocks rise while others fall. Historically, however, the market tends to go up over the full term of the next president, regardless of political party.
Data going back to 1945 shows solid average gains under both Republican and Democratic presidents. That said, expect some short-term volatility around the election.
Specific sectors might react differently, especially since Donald Trump has already served a term as president, and his policies would likely continue or even intensify if he wins again.
Interest Rates Could Eventually Rise
In the short term, bonds are expected to keep rallying, no matter who wins. The Federal Reserve started cutting interest rates in September 2024 and will likely keep doing so into 2025. Since bond prices move opposite to interest rates, bond prices could continue rising in the short term.
However, some economists are concerned that a second Trump term could reignite trade wars, potentially pushing inflation higher. If that happens, the Fed may reverse course and begin raising rates again.
According to a Bloomberg survey, more investors would likely sell off bonds if Trump wins compared to a Harris victory, which could hurt bond prices and push rates higher.
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Renewable Energy and Housing Stocks Might Struggle
One key difference between the candidates is their stance on renewable energy. Trump has been clear about wanting to roll back billions in federal tax credits and subsidies for clean energy.
In contrast, Harris wants to invest more in this sector. So, if Trump wins, renewable energy stocks could be hit hard.
The housing market could also be affected. Under a Harris presidency, with her plans to increase homebuilding and offer assistance to first-time buyers, housing stocks might rally.
But if inflation rises due to Trump’s potential trade policies with China, interest rates could go up, putting a damper on housing gains.
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Companies with China Ties Could Face Challenges
Trump’s first term was marked by high tariffs on Chinese goods, and a second term could bring even more. Trump has talked about adding a 60% tariff on top of the current 25%.
This could hurt industries tied to China, while they might see relief if Harris wins. Either way, stocks with connections to China may dip if Trump wins the election.
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Potential Winners Under a Second Trump Term
Not all stocks would suffer if Trump wins again. Some sectors could thrive, like defense, steel, fossil fuels, private prisons, and banking. Trump’s “America First” policies tend to favor these industries.
With his focus on law and order, reducing regulations, and boosting domestic production, companies in these sectors could see gains.
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The Stock Market Could Continue to Rise Overall
One advantage of Trump running for a second term is that we already know how the market performed during his first term.
From his inauguration in 2017 until he left office, the S&P 500 rose 67%. That’s close to the 85% gain during Barack Obama’s first term and the 79% gain under Bill Clinton.
This suggests that over the long term, the U.S. stock market tends to do well, no matter who is president. Long-term investors might be wise to stay the course and invest consistently, even if there’s some short-term turbulence.