The Election’s Effect on Markets

There is a consequential Presidential election coming up in November, and Vice President Kamala Harris and former President Donald Trump have significantly different views on many issues, including on economic policy. Many hot takes focus on the economic impacts of either candidates’ policies, but we wanted to look at how alternative assets typically perform during election years and what effects Harris’ and Trump’s policies would have on them.

We had SkyBridge Capital founder and former White House communications director Anthony Scaramucci on our podcast to discuss these very things, and we are going to take a closer look here.

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The Overall Market and Economy

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Conventional wisdom says that election years bring uncertainty to the markets, and investors tend to lower risk and put assets into more conservative holdings. However, in presidential election years over the past century, the stock market has actually averaged an 11.6% return, compared to an overall 10.3% return. It is in the first year following the election that performance sees a dip, as investors react cautiously to the new president’s economic agenda.

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The Candidates‍

Harris would likely continue many of President Biden’s policies that have cut inflation in the past two years, leading to the Federal Reserve interest rate cut which will benefit a number of alternative asset classes. The S&P 500 is also up 32% in the past year, so a continuation of the same economic policy could be beneficial for the stock market. She is hoping to raise the corporate income tax and capital gains taxes on those making above $400,000 annually, but expand tax credits for the middle and lower classes. Meanwhile, Trump has proposed cutting back corporate regulations, to institute an aggressive tariff policy, to restrict immigration, to potentially repeal the Affordable Care Act, and cut taxes for everyone, including corporations and the wealthy.
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Goldman Sachs thinks a Harris win would be significantly better for the economy, citing stronger potential job growth and criticizing Trump’s tariff policies. Moody’s Analytics predicts a Trump presidency would lead to higher inflation and an economic slowdown that would lead to a recession as early as mid-2025. A survey of 40 top economists also prefers Harris’ economic agenda, due to the chance of higher inflation and higher budget deficits. Meanwhile, Citigroup released a report saying that both Harris and Trump would be negative for the stock market, due to the former’s tax plans and the latter’s tariff proposals.

For wealthy investors, higher capital gains taxes is clearly a negative, but a thriving economy is good for all asset classes, particularly if inflation and interest rates stay low. Let’s look at some alternative asset classes specifically.

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Real Estate

On average, home prices have risen 4.8% in election years and 4.4% in non-election years since 1987. So while home prices tend to increase at a similar rate in election years as any other year, they tend to see a bigger increase in the year after elections, averaging a 6.97% gain. Home sales slow down in November during election years, but have increased in the year following an election nine of the past eleven times, a trend that is likely to continue in 2025. In commercial real estate, a study of activity since 2000 found no noticeable changes in deal counts, cap rates or investment volume in election years.

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Harris has proposed building 3 million new homes in four years and creating a tax incentive for developers to build starter homes, as well as a $25,000 in down payment assistance to first-time homebuyers. Those policies, if implemented, would boost both supply and demand.

Trump, with his extensive background in real estate, should theoretically be friendly to real estate investors, but has not offered specific proposals other than to ban undocumented immigrants from obtaining mortgages. However, his proposed tariffs and deportations are likely to increase the cost of construction, which could limit housing supply and cause prices to rise.

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The real estate market has slowed down in recent years due to higher interest rates, but with the Fed’s recent cut and slowing inflation, it looks poised for a rebound, regardless of who is elected in November.

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Venture Capital/Private Equity

In election years since 1984, there has been no meaningful difference in the performance of private equity compared to non-election years, though there has been greater volatility. For venture capital, performance data is difficult to come by, though the slowdown in IPOs and M&A transactions this year is likely due in part to political uncertainty. For founders, raising capital might be more difficult in an election year as funds adopt a wait-and-see mentality. There has been a slowdown in tech IPOs in 2024 and there is a large backlog of private company unicorns investors are waiting on to go public.

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Harris has proposed a small-business tax credit that could spur entrepreneurship, but she may continue certain Biden administration FTC policies that have blocked major M&A transactions. Trump has promised to cut regulations, which should aid tech companies and other startups, and his running mate, J.D. Vance, comes from a VC background.

However, the venture world is split over who to support, with prominent VCs like Peter Thiel, David Sacks and others supporting Trump, and a group called “VCs for Kamala” attracting 700 members. Even within firms like a16z and Sequoia, loyalties are divided. It may not be surprising that the overwhelming majority of tech workers support Harris, as Silicon Valley and the Bay Area has long been a liberal outpost.

In general, venture is subject to tech trends like AI and has a tendency to operate in its own bubble, leaving it somewhat insulated from the electoral calendar. Its performance post-election is more likely to be tied to those trends rather than any venture-specific policies.

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‍Crypto

The crypto market is too young to have any meaningful data on election year performance, and most crypto experts believe that the election is not likely to have much of an effect on its performance this year. Despite that, the crypto industry has accounted for nearly half of all political contributions by corporations this year, and also finds itself divided on who to support.

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Trump has positioned himself as pro-crypto, proposing a national Bitcoin reserve, and lending his brand to a new crypto platform, World Liberty Financial, to the chagrin of some of his political allies. Harris has come out in favor of crypto-friendly policies, in contrast to President Biden. A report from asset manager VanEck suggested that Harris would be the better candidate for Bitcoin, but Trump would be more beneficial for the crypto market as a whole.

Ultimately, who wins the Presidency is not likely to matter much, as regulation and legislation will come from Congress, in which crypto has had bipartisan support and in some cases, bipartisan opposition. As a global, decentralized asset class, it also is likely less susceptible to U.S. political policies than other asset classes.

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Art/Collectibles

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The specific performance of art and collectibles during election years is hard to pin down, but items that have an overt political meaning do tend to attract more attention as the nation’s consciousness is focused on politics. This manifests both in what people want to collect and purchase, and also what artists tend to produce. Artists like Banksy, Keith Haring and Ai Weiwei are well-known for their political work.

The specific performance of art and collectibles during election years is hard to pin down, but items that have an overt political meaning do tend to attract more attention as the nation’s consciousness is focused on politics. This manifests both in what people want to collect and purchase, and also what artists tend to produce. Artists like Banksy, Keith Haring and Ai Weiwei are well-known for their political work.

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There are no policies from the candidates that should specifically affect either asset class, but both tend to perform better in low interest-rate environments and in stronger economies where people have more disposable income and a higher tolerance for risk.

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Takeaways

Ultimately, while there are meaningful differences between election years and non-election years, and between the two candidates, investors shouldn’t markedly alter their investment strategy in the short-term. In the long-term, it is important to keep abreast of what policies the winning candidate will actually get passed, as they may face a House or Senate controlled by the opposing party. Investors should be prepared no matter what scenario unfolds, and retain as much flexibility as possible so they can pursue opportunities that may develop post-election.

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