SCM's Deep Dive: What the Presidential Election Results Mean for Investors

The 2024 presidential election has concluded with Donald Trump securing victory and Republican control of the Senate. As of this writing control of the House has yet to be decided. This outcome has elicited diverse reactions across the nation, highlighting the ongoing social and economic divisions within our society that we think will gradually improve.

Markets have shown resilience across different administrations

While political outcomes significantly influence our society's direction, historical evidence suggests their impact on investment portfolios is often less substantial than perceived.

As we navigate the post-election period, maintaining objectivity rather than emotional reactions becomes crucial. Setting political preferences aside, let's examine the potential economic and market implications for the upcoming presidential term.

A century of market data demonstrates that both the economy and financial markets have achieved success under various administrations. The weeks ahead will likely bring contrasting market predictions, from those anticipating a strong market rally similar to 2016 to others concerned about global economic challenges.

For long-term investors, the fundamental strategy remains unchanged: maintain diversification, stay invested, and focus on core market drivers. Current market valuations exceed historical averages, emphasizing the importance of thoughtful portfolio construction, preferably with professional guidance.

However, excessive pessimism should be approached with skepticism. Nearly every modern president has faced predictions of market decline. This pattern emerged with Obama's 2008 victory, Trump's 2016 win, and Biden's 2020 election. It's essential to separate personal political views from investment decisions.

While sound policy matters, economic cycles operate beyond political influence. Even with single-party control of Congress, policy changes typically occur gradually. Markets rapidly adjust to new policies, making it challenging to predict how specific measures will impact the economy.

Tax policy continuity expected.

The Republican victory suggests an extension of the Tax Cuts and Jobs Act beyond 2025. This legislation transformed both individual and corporate taxation, establishing a 21% corporate rate, reducing individual tax brackets, increasing tax savings, and expanding estate tax exemptions.

Pre-election uncertainty complicated tax planning, with many concerned about a potential "tax cliff." This prompted increased activity in areas like Roth IRA conversions as individuals sought to capitalize on current rates.

While taxation directly affects households and businesses, its influence on the overall economy and markets isn't always straightforward, given various deductions and strategic options available.

Markets have historically performed well under varying tax structures, including periods with top marginal rates between 70% and 94% post-World War II. Current rates remain historically low, though growing national debt may necessitate future increases.

 International trade policies under review.

Trade policy concerns center on potential new tariffs affecting major trading partners. The previous administration implemented duties on various products, and campaign proposals suggested further increases, particularly regarding China.

Presidential authority allows direct tariff implementation without congressional approval. While economic impacts warrant attention, historical context is important. Previous tariff implementations often served as negotiating tools, leading to agreements like the 2020 China trade deal.

Tariffs present complex economic considerations. They can increase consumer costs and challenge traditional free trade principles, but may also protect domestic industries and intellectual property. Many previous administration policies continued under subsequent leadership, reflecting broader shifts in global trade dynamics.

Rather than significantly adjusting portfolios in response to trade policies, investors should maintain their long-term investment strategy while monitoring potential industry-specific impacts.

Regulation under Trump.

Under a Trump administration, the regulatory climate would likely shift toward rolling back or loosening environmental and energy regulations, focusing on economic growth and energy independence.

Trump's previous policies included withdrawing from international climate agreements, reducing funding for environmental agencies, and promoting fossil fuel industries. His approach prioritized deregulation to benefit businesses, especially in oil, gas, and coal sectors, which critics argue could increase carbon emissions and slow down progress toward addressing climate change.

However, supporters claim this would reduce regulatory burdens and stimulate economic development, particularly in energy-dependent regions.

A Trump administration’s deregulatory stance could also benefit businesses by countering the more restrictive policies under current leadership, particularly the approach championed by FTC Chair Lina Khan.

Khan’s tenure has been characterized by a tough stance on antitrust issues, aiming to curb mergers and acquisitions to prevent monopolistic behavior, especially in tech and large corporations.

Trump's return could mean a pivot back to more business-friendly policies, potentially loosening restrictions on corporate consolidations and mergers. This would allow companies greater flexibility to expand and innovate, fostering growth and competitiveness, especially in industries burdened by regulatory scrutiny.

Proponents argue this could revitalize sectors that currently face hurdles in scaling operations due to stringent antitrust enforcement.

Long-term perspective is still crucial.

As election uncertainty subsides, market attention will return to key economic factors including monetary policy, corporate performance, and consumer behavior. The resolution of election uncertainty typically supports market sentiment.

Economic cycles, rather than electoral periods, have historically driven long-term returns. These extended cycles reflect fundamental changes in technology, global commerce, and innovation. For investors with multi-year horizons, these structural trends warrant more attention than daily news developments.

The bottom line? Investors should maintain their long-term investment strategy regardless of political outcomes. While policy clarity helps reduce uncertainty, focusing on fundamental economic trends remains the key to achieving financial success.

If you want to discuss this further, we offer a complimentary 15-minute call to discuss your concerns and share how we can help.

Stordahl Capital Management, Inc is a Registered Investment Adviser. This commentary is solely for informational purposes and reflects the personal opinions, viewpoints, and analyses of Stordahl Capital Management, Inc. and should not be regarded as a description of advisory services or performance returns of any SCM Clients. The views reflected in the commentary are subject to change at any time without notice. Nothing in this piece constitutes investment advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Advisory services are only offered to clients or prospective clients where Stordahl Capital Management and its representatives are properly licensed or exempt from licensure. No advice may be rendered by Stordahl Capital Management unless a client service agreement is in place. Stordahl Capital Management, Inc provides links for your convenience to websites produced by other providers or industry-related material. Accessing websites through links directs you away from our website. Stordahl Capital Management is not responsible for errors or omissions in the material on third-party websites and does not necessarily approve of or endorse the information provided. Users who gain access to third-party websites may be subject to the copyright and other restrictions on use imposed by those providers and assume responsibility and risk from the use of those websites. Please note that trading instructions through email, fax, or voicemail will not be taken. Your identity and timely retrieval of instructions cannot be guaranteed. Stordahl Capital Management, Inc. manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.

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