Few if any events in 2024 were more anticipated by Wall Street and investors than Election Day. Although not all legislation on Capitol Hill has bearing on the stock market, elected officials are ultimately responsible for shaping the fiscal policy that can directly impact the profit potential of corporate America.
Not too long after polls closed on Election Night, former President Donald Trump was declared America’s president-elect by the Associated Press (AP), and Republicans were deemed to have reclaimed a majority of seats in the Senate. However, control of the House of Representatives, at the time, wasn’t as clear.
On Nov. 13, eight days after polls closed, AP officially announced that Republicans had won enough seats to maintain their majority in the lower house of Congress. With eight House seats still left to be called, as of the early evening on Nov. 14, the GOP holds 218 seats (the precise number needed to maintain a majority in the 435-seat House of Representatives), while Democrats hold 209 seats.
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The GOP secures control of the lower house of Congress
Though Republicans now have a unified government — i.e., they control both houses of Congress and the White House — there are still uncertainties about what’s to come for the U.S. economy and American businesses.
For example, Trump has proposed a tariff-heavy policy meant to encourage American-made production and make domestic goods more price-competitive with imported products. While tariffs would be expected to cap at up to 20% on imports, the incoming president has suggested levying a country-specific 60% tariff on imports from China, the world’s No. 2 economy by gross domestic product (GDP).
While tariffs would, on paper, be expected to level the playing field for American businesses, they threaten to raise prices for consumers and have the potential to worsen already strained trade relations with China. It’s also possible that America’s allies would retaliate with import tariffs of their own on American-made goods.
Wall Street is likely also concerned about our country’s rapidly rising national debt. Republican policy traditionally favors lowering tax rates for consumers and businesses, which runs the risk of further widening the deficit.
The closest thing to a certainty, with Donald Trump soon to be in the Oval Office and the GOP controlling the upper and lower houses of Congress, is that personal and corporate income tax hikes are off the table. Democratic Party presidential nominee Kamala Harris had proposed increasing the corporate income tax rate by 33%.
The lowest corporate income tax rate in eight decades has played a key role in spurring share repurchase activity on Wall Street. Based on data from S&P Global, components of the S&P 500 (SNPINDEX: ^GSPC) have bought back a little over $7 trillion worth of their stock over the trailing-10-year period (ended June 30, 2024), with a notable uptick in buyback activity following the passage of Trump’s flagship Tax Cuts and Jobs Act, which permanently reduced the corporate income tax rate from 35% to 21%.
Image source: Getty Images.
Here’s what happens to stocks when Republicans control the House
But the prevailing question for investors is: What does a GOP-led House mean for stocks? If we allow history to do the talking, investors have every reason to be optimistic.
In June 2021, Integrity Wealth Management president and Forbes contributor Mike Patton published a data set that analyzed the returns of the ageless Dow Jones Industrial Average (DJINDICES: ^DJI) from 1946 through 2020 under a variety of political scenarios. In particular, Patton notes that in instances where Republicans held the majority of seats in the House of Representatives, the Dow Jones averaged an annual return of 10.7%. For the sake of comparison, when Democrats control the House, the Dow has delivered a more modest 7% average annual return.
The same disparity holds true with a unified government. When the GOP is in control of Congress, the Dow has generated an average annual return of 8%, which is a bit higher than the 6.7% average annual return when Democrats control both houses of Congress.
But this data only tells part of the story. No matter the scenario American voters choose, with regard to which party controls the Oval Office or one/both houses of Congress, the average annual return for the Dow Jones Industrial Average is always positive — ranging between 6.3% and 12.9%, based on the scenarios Patton examined.
Patton’s findings are consistent with what long-term investing cycle data tells us.
The data set you see above was posted on social media platform X in June 2023 by the researchers at Bespoke Investment Group. It compares the calendar-day length of all 27 bear and bull markets in the benchmark S&P 500 since the start of the Great Depression in September 1929.
The most notable takeaway from Bespoke’s 94 years’ worth of analysis is that investment cycles, like economic cycles, aren’t linear. Just as recessions are short-lived, so are bear markets. The average S&P 500 bear market since the Great Depression has stuck around for only 286 calendar days, or roughly 9.5 months.
On the other end of the spectrum, the typical S&P 500 bull market has endured for 1,011 calendar days. Further, 14 out of 27 bull markets, including the present, have lasted longer than the lengthiest S&P 500 bear market.
Despite whatever uncertainties may arise from rearranging the puzzle pieces in Washington, D.C., history has consistently shown that patient investors are handsomely rewarded on Wall Street.
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