How the U.S. presidential election impacts the economy

Presidential elections can have a major influence on the U.S. economy. Every four years, the country decides whether to stay the course or make a change that could impact regulations, taxes, foreign policy and other national priorities.

These changes matter not just for the country but also for the decisions you make or don’t make regarding your finances. It's no wonder that in Citizens' October 2024 national survey of U.S. adults, 44% reported feeling significant financial stress and anxiety prior to the 2024 election.

While planning your next financial decisions, it can help to look at the historical impact of past elections as well as proposed policies.

Financial markets

Historically, presidential elections have not significantly impacted the long-term performance of financial markets. Going back to 1927, the S&P 500 posted a similar return in the years before and after presidential elections. The long-term trend was the same regardless of which party won.

The winning party’s policies do tend to have an impact on specific market sectors. For instance, defense stocks usually do better under a Republican administration, while health care stocks typically do better under a Democratic administration.¹ However, the overall return of financial markets has mostly remained the same.

Congressional elections matter. The stock market historically performs better the year after an election if the president's party controls one or both houses of Congress and performs worse if the opposition party holds both the House and Senate.²

Overall U.S. economy

Presidential elections set the stage for economic policies and priorities. A 2024 report from the Economic Policy Institute analyzed the economic performance of both parties in the White House from 1949 to the present day.

The report found that the economy fared better under Democratic administrations for factors like GDP growth, income growth, unemployment and inflation. During this period, GDP growth was 3.79% per year under Democratic administrations and 2.60% under Republican administrations.

The report admits that correlation is not causation, and luck could have contributed to these differences. Regardless, Americans would be better off paying attention to the specific policies that could impact them individually, like taxes and regulations.

Global financial markets and economy

U.S. presidential elections also matter for global financial markets and economies, but the impact can vary significantly by country and the policies of the sitting U.S. president.

For example, a president who supports tariffs on countries selling goods to the U.S. could affect the performance of countries with considerable exports to the U.S., such as China and Mexico. Tariffs on China, for instance, could boost the export markets of other countries like India and Vietnam.³

On the other hand, a president who supports renewable energy would be better for European equities. However, it could have a negative impact on the long-term prospects of oil-producing nations around the world.

For investors, it could be wise to explore diversifying across global markets rather than being fully concentrated in a specific one.

Potential regulatory and tax changes

Historically, Democratic administrations typically increase regulations and overall tax rates while Republican administrations reduce them. The future of the Tax Cuts and Jobs Act of 2017 (TCJA) could be decided in the 2024 election, as many of these tax rate reductions and enhanced tax breaks are set to expire at the end of 2025.⁴

Republican administrations traditionally look for more deregulation and further tax cuts, likely boosting the short-term profitability of companies and investors.

On the other hand, a Democratic administration would likely continue the status quo for regulations while allowing many TCJA tax cuts to expire at the end of 2025.

Americans will be eagerly watching. According to Citizens’ survey, 44% reported feeling anxious about tax policy changes.

Lending and interest rates

Interest rates and lending costs are another top-of-mind issue for voters, especially as rates peaked at their highest level in 23 years as the Federal Reserve tried to bring down inflation. These higher interest rates have impacted mortgage rates, the overall housing market and other areas of the economy.

Many voters are waiting to see what happens with the presidential election. Citizens' survey found that 43% of respondents said they are anxious about the housing market, while 23% said they are delaying buying or selling a house until after the election.

Despite this being a major election issue, presidents only have a minor impact on interest rates for lending since the Federal Reserve operates independently of the two political parties.

The Federal Reserve cut interest rates in September 2024 for the first time in four years and may make additional cuts in 2025. This could bring down interest rates and borrowing costs, regardless of which party is in the White House.

National debt

The U.S. national debt is over $35 trillion. This is a bipartisan issue that has been contributed to by both parties. The national debt grew by at least a double-digit percentage under every administration since Nixon in 1969.⁵

Overall, the national debt grew more quickly under administrations that prioritized defense spending and tax cuts, which expanded the deficit.

A president who cuts taxes would likely expand the national debt more while a president who increases social welfare spending would also add to the deficit. It remains to be seen how either political party will solve the national debt issue.

The national debt can influence interest rates and market stability. High levels of debt may prompt higher borrowing costs as the government competes for capital, potentially leading to inflation or reduced economic growth. Additionally, concerns about the government's ability to manage its debt could cause volatility in financial markets.

Navigating the election and its impact

Elections can feel overwhelming because of their importance to the overall economy. While you can't individually determine the election outcome, you can create a plan to take control of your personal finances.

According to Citizens' survey, 43% of adults reported they would feel somewhat or far less stressed over the election if they could talk with a financial advisor about the potential impact and receive guidance on decisions. Together, you could build a personalized plan to help you achieve your goals regardless of the presidential election results.

Wherever you are on your financial journey, Citizens is ready to help. Learn more about how we can provide guidance and solutions to give you confidence for whatever's next in your life.