Which presidential administration would be better for business?
Clear pattern has emerged between stock returns and polls, with American business clearly favoring Trump
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The collective wisdom of Wall Street is often much wiser than any one analyst, pundit or poll, and that collective wisdom seems to be banking on a Donald Trump victory this November. A clear pattern has emerged between stock returns and presidential polls, with American business clearly favoring Trump.
In a recent letter to investors, billionaire hedge fund manager Scott Bessent noted that when Trump leads in the polls, stocks have a rate of return 10 times better than when President Biden leads.
He explains that he is bullish on the market for what he believes is the same reason the market broadly is bullish: Trump seems to be en route to capturing both the Republican nomination and the White House.
Trump seems to be en route to capturing both the Republican nomination and the White House. (Getty Images/Photo illustration / Fox News)
Over the last 14 months when Biden has been ahead in the polls, stock returns have been lackluster, averaging an annualized 3.4%. Conversely, when Trump has led, stock returns have averaged an annualized 35.2%.
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Bessent lays out a convincing argument to his Key Square Capital Management investors based not on politics, but the stark policy differences between Trump and Biden.
Portions of the tax cuts signed into law by Trump will expire in 2025, and Biden has repeatedly advocated for repealing some, if not all, of those tax changes, and then pushing tax rates even higher. Trump, on the other hand, wants to extend the tax cuts at a minimum and prefers to cut tax rates further.
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On the regulation front, Biden has demonstrated a heavy-handed approach which is costing the average American household thousands of dollars annually. By contrast, Trump focused on removing burdensome, ineffective and costly regulations, which reduced costs for American households.
The Biden administration has also been much more willing to wield anti-trust law as a political cudgel, not a surgical tool for protecting consumers. This marks another deviation from more prudent Trump-era policies.
The different results between the two administrations have been just as stark on the international stage. For all the accusations of Trump’s bluster and bombast, especially toward hostile nations, those bad actors overseas were kept in check during his tenure. While the media stoked fears of Trump starting World War III, nothing of the sort materialized.
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Russia invaded Ukraine under Trump’s predecessor and successor, but not when Trump was in office. Nothing resembling the Oct. 7 terrorist attack in Israel happened either.
From a business standpoint, Trump’s policies are the clear favorite. He delivered a tax and regulatory environment that allowed American companies to hire more workers and pay higher wages while also keeping price increases down and still growing the bottom line. .
That was a boon for stocks as the expected earnings of those businesses kept going higher.
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Trump also produced less uncertainty than Biden – an important point since there are few things business hates more than uncertainty. With consistent application of anti-trust law and a stable international stage, investment grew faster under Trump because business faced fewer unknowns.
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J.P. Morgan CEO Jamie Dimon expressed similar sentiments recently when he said that he didn’t like how Trump said things, but he thinks Trump was right on major policy issues and the economy did well as American businesses thrived. Dimon was judging by results, not rhetoric.
Similarly, Bessent emphasized that his analysis is an investment perspective, not his personal political views. Rather, this is about what kinds of policies will allow American business to thrive and ultimately generate higher earnings, elevating stock prices and returns to shareholders.
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The implicit endorsement which the collective wisdom of Wall Street seems to be bestowing on Trump mirrors the feelings of Main Street on the economy. It’s not hard to see why: average earnings, adjusted for inflation, are down about 4.4% after three years under Biden.
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By contrast, inflation-adjusted earnings rose 2.6% during the first three years of Trump’s presidency and rose further during his final year.
Bessent’s analysis of stock returns and polling data indicate Wall Street and Main Street are lining up behind the same candidate this year based on policy, not personality.