I’ll begin by stating that the following post does not violate my self-imposed sanction against political snark on my part. This is a neutral and objective piece, intended to offer thoughts about how the forthcoming election will affect the market. You will be delighted to know it is certified snark-free.
I will begin with what I believe are a few fundamental truths about the relationship of politics and equities:
- No office holder wants to see the stock market go down – – ever – – because 99.999% of the public wants stocks to go up – – forever – – and a bear market makes people grumpy.
- To varying degrees, politicians have some control over propping up the stock market, but they are not omnipotent. George Bush wasn’t cheering on the wipeouts of 2001-2002 and 2008-2009, but they happened anyway, which led to the surprising Obama victory.
- I cannot think of any politician in history, however, who has been more dependent on the stock market staying high than the current occupant of the White House.
Having said that, bear though I may be, I am not holding out any strong hope that there will be any meaningful downturn in the market this year. Yes, we may have a week, gosh, maybe even two, of some selling at some point, but I think it’s just going to be a grind-fest, with a constant tug-of-war between, on the one hand, reality, and on the other, political forces to keep things higher so the mid-terms aren’t a total disaster for the party in power.
There are 114 days left until the election which will be here before we know it, but also a LOT can happen in 114 days. At the moment, however, here’s how things are shaping up:
So, it seems very likely the GOP is going to lose control of the House. The real toss-up is the Senate:
Between now and election day, November 3rd, the President will move heaven and Earth to keep the market from falling. I think he will succeed. Exactly two months later, January 3, 2027, the new Congress will be sworn in. It is at precisely that moment, I believe, that the President’s motivation to prop up the market will drop by about 95%. He simply won’t give two shits anymore.
Let’s back up, however. I’ve already asserted he’s VERY motivated to keep stocks high until election day. What about after? What happens after the votes are counted? Well, let’s examine this as a series of possible binary outcomes. There are two possibilities and two houses:
Dems Win House, GOP Keeps Senate
This seems the most likely. What this gets us is a total stalemate for two years. Hard as it is to believe, the government will do even LESS than it is doing already, and the principal change is going to be constant, constant, constant investigations, hearings, and inquiries. Jared Kushner and Howard Lutnick might as well get used to sitting in front of House investigations for a good long while. I think this outcome is pretty much baked into the market.
GOP Keeps House, Dems Win Senate
This, to me, seems impossible, so I won’t even waste your time.
Dems Win both House and Senate
This seems rather unlikely to me, but it’s within the realm of possibility, especially if things get worse domestically (i.e. inflation clearly getting worse) and/or internationally (Iran gets worse). This is the administration’s nightmare scenario and one in which I think the market would fall very hard. It would also mean investigations would be cranked to the “11” level. Paradoxically, I also think this is the best-case outcome for the GOP to secure the Presidency in 2032.
GOP Keeps both House and Senate
This, again, strikes me as terribly unlikely, but obviously the GOP would treat them as a tremendous mandate and would double down on everything they’ve been doing for the past two years. It would also send the Dems into an existential crisis, since it would be such a shocking upset.
The Interregnum
I believe the most dangerous period of time for this entire topic is the 60 days between the election and the swearing-in. The present administration will not be pleased with any diminishment, so it is going to do everything in its power to challenge, subvert, and alter any deleterious outcomes. There will be accusations, lawsuits, investigations, and invective. The divisions in the nation will be revealed most clearly during this period.
Come what may, after January 3rd, it’ll all stop mattering. If the stock market is counting on a sponsor, it’s going to lose most of that sponsor on November 3rd, and the same sponsor is going to vanish altogether with the new year.
He just won’t have a reason to keep a crap anymore, and frankly, if the Dems are fully in power, the administration has a HUGE impetus for the market to absolutely go to shit over the next two years, since the Dems will be the easy ones to blame. That’s the two-year window of opportunity for the bears.
Listen, I am a terribly impatient person, and I get no jollies from the prospect of waiting MONTHS for any real selling to get unleashed. Still, last time I checked, the market doesn’t care about my wants or needs. Simply stated, given the realities outlined above, I think once the new year begins, the market will be the bears’ for the taking, and not a moment before.
