How U.S. Presidential Elections Impact the Economy

Written by: Tex Wambui

This occurs every four years where the United States prepares for its presidential election-which though is politic, is also very much economic. The threat of regime change introduces a great deal of instability, and that instability has the potential to upend everything from stock exchanges to consumer attitudes. From being an investor to an entrepreneur or even an investor merely monitoring on your 401(k), it is necessary to comprehend how these elections can fumble economically. For instance, let us consider the next general election and the year that it will be held, that is 2024.

On one side we have Donald Trump – this man is more to the right than any of the other candidates because he is for deregulation and tax reduction. On the other is Kamala Harris who is concerned with issues to do with climate change and social justice. These are not mere political slogans – they are directions to the trading floors. This is so because people have been aspiring to know what the next four years will be like, depending on the elected candidate which, in turn, alters the investor’s decision on where to invest.

​By reflecting back, U. S. elections have always involved a major destiny of the economy. Remember the Great Depression? Herbert Hoover’s policies were so unpopular that Franklin D. Roosevelt got elected and brought in the New Deal—a game-changer for economic policy in the U. S. Fast forward to more recent elections like 2000, 2008, and 2016, and you’ll see the same story: elections become economic waves that can be transmitted for years.

It is generally seen that the stock markets have lots of volatility in the election years. Elections, I have discovered, are not a favorite among investors since they always introduce certain levels of uncertainty. For example, in the months closely to the 2020 election, the market was experiencing many fluctuations. Digital infrastructure rose as people awaited Joe Biden’s policies based on them, while energy which was in Trump’s line declined after he lost. That is just a demonstration how much the market depends on who is likely to be the president of the United States.

Consumer confidence also suffers some losses in the election year, and this has negative impacts to the economy. One of the most useful measures for ascertaining how positive (or negative) consumers are about the economy is the Consumer Confidence Index (CCI). Compared to 2019, the CCI in 2020 declined sharply for reasons other than COVID-19 or an election in 2020: They are confused about what is going to happen next, they are reluctant to spend and invest, without spending and investing there cannot be growth.

​There’s also the manner in which investors rebalance their portfolios in the election year. Trading is one of the fields that many people adjust according to which side they think is going to come out a winner. In 2020 for example a large amount of investors shifted their holdings to technology and health care stocks based on their predicted Biden win. What is quite amusing, however, is to observe how much these predictions influence the investment decisions, many a time before the election itself.

Okay, here is the thing: why does all of this matter? Well, let me tell you, U. S. presidential elections lead to great changes in the domestic as well as in the global economy. They offer predictions which, if wrong can result in changes in the market, consumer perception and multiples shifts in investment. It is advisable to watch how things turn out in the build up to the 2024 election. Policies of this next administration will set the economies for not only the United Sates but for the rest of the world as well.

​It is important for one to understand these dynamics that is why during election year there are fluctuation in the economy. Because, no matter if you are an investor who needs to change the investment portfolio or a simple citizen who is interested in the impact on the economy of the political process, it is quite evident that the presidential election is no longer a pure battle for the most votes – it is the battle for the future of the economy.