How Societal and Economic Factors Influence US Presidential Election Decisions

DOES A RELATIONSHIP EXIST BETWEEN S&P 500 AND THE US ELECTION OUTSOME?

Apart from historical trends and policy considerations, past data indicates that the S&P 500 stock index may serve as a prognosticator for the winner of the US election. Empirical evidence shows that the S&P 500 has an 87% accuracy rate in predicting the election's outcome. According to the data, if the S&P 500 records gains three months before the election compared to its value at the start of the year, it suggests that the incumbent party is likely to secure victory.

Stock performance has long been a crucial factor in evaluating the success of each presidency. However, the unprecedented impact of the COVID-19 pandemic has raised questions about the reliability of using the S&P 500 as a traditional indicator. Are we living in an era where previous markers of success are no longer applicable, or has the pandemic merely highlighted preexisting issues?

To find answers, we delve into past presidential races, analyzing the unique challenges faced by incumbents, their responses, and the subsequent impact on future elections. By juxtaposing historical conditions with S&P 500 fluctuations, we can attempt to forecast the dynamics of the 2020 US election.

• Bush’s Presidency Punctuated by Crisis
• Obama Elected as US Society Demands Change
• Trump’s Tumultuous Ascent to Power
• How are Trump & Biden Planning to Deal with Current Crises?

BUSH'S PRESIDENCY PUNCTUATED BY CRISIS

George W. Bush inherited a precarious economy when assuming the US presidency in 2001. The stock market was staggering due to the dot-com bubble, and the September 11, 2001, terrorist attacks would incite a war that profoundly transformed not only the US but the entire globe.

Policies to correct and Issues the Arose: Tax Cuts and War

President Bush implemented two significant fiscal measures in response to the stock market collapse in the early 2000s:

1. The Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) aimed at providing relief to various income groups, but some analysts argue that it disproportionately benefited high-income households, with the top 1% receiving a yearly effective tax cut of 5%.

2. The Jobs and Growth Tax Relief Reconciliation Act of 2003 (JGTRRA) was another fiscal policy that aimed to stimulate economic growth and provide tax relief across the board.

Simultaneously, during his tenure, President Bush authorized military actions in Afghanistan and Iraq following the September 11, 2001 attacks. These military actions resulted in a doubling of military expenditure from $300 billion to $600 billion between 2001 and 2008.

Some studies, such as the one conducted by Leigh et al of the National Bureau of Federal Research (NBER), suggest that US markets can be sensitive to changes in the probability of war. For instance, the S&P 500 experienced a one-day loss of 4.9% following the 9/11 terrorist attacks. Moreover, a 10% rise in the probability of ousting Saddam Hussein caused the S&P 500 to drop 0.5%.

However, while the threat of war did have some impact on the markets, the evidence presented by Leigh et al does not conclusively prove a long-term effect on the S&P 500 index due to Bush's military actions. Therefore, in purely economic terms, it is uncertain if the wars contributed to a decline in public support for President Bush.

The Bush Administration in Recapitulation: Lessons Unveiled

Amidst President Bush's tenure, one economic expansion surfaced, but it was also marred by two recessions, leading the US debt-to-GDP ratio to reach 68%. For investors, speculative fortunes experienced a shift. The stock market, upon Bush's departure, found itself in turmoil. Investors who persevered witnessed S&P 500 returns plummeting to -40%.

In retrospect, the crucial factor that propelled Bush to the presidency was economics. Irrespective of the efficacy of his policies, American voters perceived them as a way out of trouble during the collapse of a major industry - the internet. While his response to the 9/11 terrorist attacks was accepted, it might not have been the optimal choice from economic and social standpoints. Overall, economic factors sufficed to secure Bush two terms in power. Nevertheless, as his tenure concluded, the American populace yearned for change.

OBAMA ELECTED AS US SOCIETY DEMANDS CHANGE

Amidst inheriting a delicate economy, President Barack Obama assumed office during the 2009 financial crisis. The Great Recession had persisted for two years, yet Obama embarked on his campaign with a singular and compelling slogan: "Change We Can Believe In." His candidacy not only stood in stark contrast to Bush's legacy but also carried the historic significance of potentially becoming the first African-American president in the United States.

A Time for Change: Policies and Problems that Emerged

Many people viewed Obama’s inauguration as a sign of political and social transformation. He did not end the wars abroad, but there was a hope he would. The US was suffering from two economic crises and two military conflicts under Bush’s presidency. The situation demanded a radical shift, and voters trusted Obama to deliver it.

The Obama vs. McCain race was marked by social aspirations, unlike the Bush years where economic factors shaped public opinion. Both Obama and McCain were among the most popular candidates in recent history. A Gallup poll from October 2008 showed Obama with a 61% favorable rating, while McCain was close behind with 57%. This could indicate US voters were eager for a president who could offer a new direction. We can compare this with a 45.5% approval rating for Donald Trump before the 2016 election.

Based on this evidence, we can suggest the idea that economics and the US economy were vital factors during the Bush campaign. But by the time Obama came along, public sentiment had shifted towards stabilizing the situation. Then, when Trump was elected, US voters were back to focusing on economics.

Obama Stock Market Growth, Jobs, and Consumer Confidence

The economy was a crucial factor, even though Obama’s image and politics were significant. The US Bureau of Labor Statistics reported that the unemployment rate increased from less than 5% in December 2007 to 7.2% a year later. Unemployment rates continued to rise during the early stages of Obama’s presidency.

However, by October 2012, just before the US voters cast their ballots, unemployment had fallen by 8%. This ended the trend of losses and an NBC News poll showed that voters saw it as a sign that Obama’s economics were improving. This resulted in a 15-point increase in support, with 42% of people surveyed thinking that the economy would get better under the incumbent rather than challenger Mitt Romney.

What We Learned from the Obama Administration: A Summary

Obama’s two terms taught us how economics and social factors interact. When he won his first term, Obama was the symbol of change: a leader that reflected a change in public opinion and someone that wouldn’t base his policies on hard economics alone. As he ran for a second term, the economy became a bigger issue. People wanted jobs and they believed Obama was the person to provide that.

This creates an interesting contrast with the current situation. Social factors may not help Donald Trump win a second term. However, the issue of jobs might. His America First strategy brought economic growth until the COVID-19 pandemic hit in Q1 2020. Now, with US jobless claims reaching record levels (over 830,000 per week in September 2020), voters may favor the candidate that can handle the employment crisis, in much the same way they did with Obama in 2009.

TRUMP'S TUMULTUOUS ASCENT TO POWER

Amidst his predecessors' experiences, Trump inherited a different situation, not burdened by a recession. Nevertheless, he faced an economy he perceived as threatened by China's rise. Past trade agreements and China's inclusion in the World Trade Organization during the Bush era had shifted the global dynamics, and the US was no longer the sole superpower.

Trump's campaign revolved around restoring US supremacy by enticing businesses to return home, embodied in his slogan "Make America Great Again." Despite the economy's strength, a significant number of Americans were dissatisfied with the substantial influence that foreign investors, especially China, had on US imports, exports, and national debt.

By 2011, China's ownership of US debt had reached $1.3 trillion, and they controlled 15% of global exports. Trump recognized this as a crucial battleground. He perceived China's dominance as an economic problem that Hilary Clinton couldn't resolve, but he believed he could tackle. This issue served as a pivotal factor influencing the election's outcome.

What We Learned from the Trump Administration: A Summary

Trump won the election and aimed to strengthen businesses and limit China’s influence. He introduced tax cuts, especially for businesses. In 2017, he suggested a corporate tax rate reduction from 35% to 20% and the removal of estate taxes. He also lowered the number of federal tax brackets for individuals from seven to three: 12%, 25%, and 35%. Additionally, business income reported on a personal return was taxed at 25%.

While he was focused on US businesses, Trump also launched his assault on China. The trade war was driven by a desire to put “America First.” Bringing back manufacturing jobs lost to other countries, including China, was a priority for Trump. Reducing the trade deficit and reasserting the US as a superpower was always going to clash with the growth of China’s economy.

Trump’s policies were effective. Unemployment at the beginning of 2020 was below 4% and economic growth was similar to the levels seen during Obama’s tenure. The S&P 500 also generated returns of more than 50% in the latter part of 2019. However, when COVID-19 hit in March 2020, things went downhill.

HOW ARE TRUMP & BIDEN PLANNING TO DEAL WITH CURRENT CRISIS?

How the 2020 Presidential Candidates Will Face a Global Pandemic. Before the COVID-19 outbreak of 2020, President Trump was improving the US economy and S&P 500. Up until February 2020, S&P 500 returns under Trump were at 48%. Although they’ve since dropped to 43%, his time in office has been more positive for investors than Bush but less positive than Obama.

However, the Great Shutdown of 2020 has ended three years of economic growth. COVID-19 has caused lockdown measures across the US, businesses to go bankrupt, and millions of people to lose their jobs. This could damage any future Trump vs. Obama stock market debates. But, more importantly, it means the winner of the next election will have to deal with not only S&P 500 charts, but social and economic issues also.

COVID Affects All Aspects of Life

Between March 21 and May 28, 40 million US citizens applied for unemployment insurance. Trump responded by signing a $2 trillion stimulus package called the Coronavirus Aid, Relief, and Economic Security Act (CARES). By August 2020, real GDP was 4% lower than when Trump entered office. However, the Trump stock market swing was in full force as indexes were 54% higher. Indeed, even though the S and P 500 fell by 34% when COVID-19 hit, it has since recovered and reached record highs.

The recovery is due, largely, to the technology sector. Energy and financials have fallen 37% and 20%, respectively, in 2020. In contrast, the S&P’s tech sector has grown by 25%. This rise has been helped by the performance of Amazon and Apple during the lockdown. The tech surge, along with stimulus measures overseen by President Trump, has enabled the US economy to bounce back. Although the crisis is far from over, 1.37 million jobs were added in August 2020, taking the unemployment rate from 10.2% in July to 8.4%.

US ELECTIONS ARE A COMPLEX PUZZLE

Social and economic factors have a history of influencing US elections. The Bush years were mainly defined by economic issues. Although his approval rating was lower than other Presidents, there was something in his policies that attracted voters. Bush may not have fixed the financial problems but there was a sense the country was recovering from them. This led voters to focus more on social issues. 

In that environment, Obama represented the idea of change. When his term ended, economics once again became an issue. Trump capitalized on this. Like Obama, he was a President of change. However, his change involved aggressive policies in an attempt to improve the economy. That resonated with voters. Is it time for another change? Do voters prefer economic stability or social stability? At a time of major challenges, this is the key question. It seems the issues voters relate to more could determine who becomes the next US President.

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