As president, Donald J. Trump continually took credit for a rising stock market, citing it as evidence that his economic policies were enriching Americans.
Now, Mr. Trump is again using the stock market as a barometer — attributing its rise earlier this year to excitement about his candidacy and blaming his rival, Vice President Kamala Harris, when stocks recently wobbled.
As the S&P 500 nears another record high, the stock market could be featured further as a talking point on the campaign trail. Although President Biden has been less emphatic in his stock market proclamations, he, too, has cited it as a sign of a healthy economy under his watch.
The reality of what drives Wall Street is much more complicated. Stocks, like the economy, ebb and flow for many reasons. While the outlook for White House policy can be one of them, big and sustained moves in the overall market have historically had more to do with other things, from the Federal Reserve’s decisions to the potential for new corporate innovation like artificial intelligence.
“I think markets are politically agnostic,” said Kristina Hooper, chief global market strategist at Invesco. “With good reason, because it doesn’t really matter.”
Both Mr. Biden and Mr. Trump have enjoyed healthy stock rallies under their watches. The S&P 500 has risen roughly 67 percent since Mr. Biden won the last election, compared with just under 60 percent for the same period under Mr. Trump. The index rose 65 percent from when Mr. Trump was elected in 2016 through to the 2020 election.
The S&P 500’s 15 percent rise over the first half of the year has been widely attributed to the rally in a handful of stocks deemed to be beneficiaries of the boom in artificial intelligence, not to Mr. Trump’s chances of regaining the White House. The index’s brief sell-off from mid-July through early August arose in part from divergent monetary policy between Japan and the United States and the rapid unwinding of trades that were no longer as profitable, not from Ms. Harris’s entry into the presidential race.
A sharp stock market recovery this month is seen as predominantly a reaction to the increasing likelihood, after favorable economic data, that the Fed will cut interest rates in September.
While the attempted assassination of Mr. Trump and Mr. Biden’s decision on July 21 to leave the presidential race did register with investors, “I don’t think it’s what’s driving the market right now,” said George Goncalves, head of U.S. macro strategy at MUFG Securities.
This is not to say politics has no bearing on the stock market at all. White House policy has the potential to influence the economy. The economy helps to drive corporate profits. The stock market is, in theory, a reflection of how profitable investors think public companies will be.
Last Friday, Ms. Harris outlined her broad economic plans in Raleigh, N.C., focusing on middle-class families that have struggled as the cost of living has risen, homing in on the need to bring down the cost of housing.
Many analysts caution that presidential policy rarely rises to the top of the list of priorities for stock investors; policy is often watered down by the time it becomes legislation, its influence is often fleeting, and even when effects are expected they can be counterintuitive. While specific companies and sectors of the market can be seen to react more directly to policy and new legislation, the broader market is more insulated from the intent of any president.
There are moments, however, when the significance of politics is greater than others.
The stock market rally that accompanied Mr. Trump’s White House win was predicated on the expectation that he would lower corporate taxes.
When he was taking credit for the stock market rally at the start of the year, there was “no validity to that at all,” said Seema Shah, chief global strategist at Principal Asset Management. But the tax cuts in Mr. Trump’s first term “did fundamentally change the outlook for growth,” she said. “It’s fair to say he did have an impact on the equity market trajectory.”
Even then, the boost to corporate earnings growth lasted only a year, while profits were still being compared with the prior year, when taxes were higher. After that, earnings levels were higher than they otherwise would have been, but not necessarily growing more quickly.
The onset of the pandemic in 2020 sent stocks tumbling sharply lower. The swift market recovery that followed was largely attributed to the Fed’s decision to unleash its financial firepower to prop up investments and the economy. The government also poured trillions of dollars of relief money into the economy under both Mr. Trump and Mr. Biden.
That helped to avert panic in markets and meant that the economy bounced back swiftly from its temporary shutdown, but it also helped to fuel demand and contributed to rapid inflation.
Given that, the policies affected markets in complicated ways over time, analysts said. That underscores that market performance is often more about expectations for growth and inflation than about pure politics.
“It’s not that elections don’t matter, but for investors the focus on growth and inflation does a better job at explaining what the potential outcome may be,” said Thomas Hainlin, global investment strategist at U.S. Bank, who has studied the statistical relationship between presidents and the stock market.
“Is there any definitive correlation between presidents and the stock market? We found it has been fairly weak,” he said.
Typically, the S&P 500 falls before an election and rises afterward. Mr. Biden’s win in 2020 was preceded by two months of losses for the index, before a bumper 10 percent rally in November that coincided with advancements in Covid vaccine developments. In 2016, the S&P 500 nudged lower for three months before rallying a little over 3 percent after Mr. Trump won the election.
Analysts attribute this dynamic to the frequent refrain that investors dislike uncertainty, with a rally kicking in once the election outcome is known, rather than its being specific to any one candidate or party. Over the longer term, who is in the White House has mattered less.
Going back to Dwight D. Eisenhower’s first term, which began in 1953, only three presidential terms have resulted in negative returns for the S&P 500 — Richard M. Nixon’s second term, which Gerald R. Ford finished, and both of George W. Bush’s terms.
In fact, the stock market may do better when the government is divided — with the House or Senate able to block legislation — precisely because money managers have greater certainty over the policy backdrop they are investing against. Less is likely to change if Congress can’t agree to anything.
Bank of America’s monthly survey of fund managers listed a U.S. election “sweep” — where one party controls the White House and Congress — as one of its tail risks for the market, though it was deemed far less important than a recession, geopolitical conflict or inflation, among others.
Even when policy is clear, it can have unexpected outcomes. The stock prices of traditional energy companies have done better under Mr. Biden than under Mr. Trump, even though Mr. Trump’s policies are friendlier to the fossil fuel industry. And clean energy stocks surged under Mr. Trump but languished under Mr. Biden, even though Mr. Biden passed a sweeping green energy investment package.
Looking ahead, investors think that a red wave — giving Republicans control of both the White House and Congress — could pave the way for potentially inflationary policies like tax cuts that could increase the deficit. That could in turn push government borrowing costs higher.
But such policies may arrive as the Fed is cutting interest rates, pulling government borrowing costs lower and making the direction of financial markets harder to predict.
Chris Krueger, managing director of the Washington research group at TD Cowen, pointed to trade, immigration and labor market policies as other areas where a presidential administration could shift policy and drive the direction of both markets and the economy.
“They’re hugely consequential,” he said, though he added, “I think presidents probably get too much credit when markets go up, and too much blame when markets go down.”
Mr. Krueger said he wasn’t sure exactly how a Trump win, should one happen, would affect the stock market.
“It’s inflationary — it’s probably more of a rates trade, as opposed to equities, but higher rates historically have not been a great thing for stocks,” he said. The upshot is that “2024 isn’t as linear as 2016 was.”
Read More: Trump May Claim Credit for Stock Surges, but the Reality Is Far More Complicated