U.S. elections: the effects on the economy and your finances

Whether you followed the U.S. election campaign between Kamala Harris’s Democratic Party and Donald Trump’s Republican Party from near or far, it’s still hard to know who to believe when it comes to the economy. Presidential candidates often claim that the election of their opponent would be a disaster, and this is compounded by the misinformation propagated by some media outlets or circulating on social media.

The real influence of the American president on the economy

As leader of the most influential country in the world, the President of the United States can seem all-powerful. While it’s true that the president holds considerable responsibility and power, it’s important to put things into perspective and emphasize that the president doesn’t wield absolute influence over American politics or the global economy.

For example, although President Donald Trump threatened in 2018 not to include Canada in the new free trade agreement that was to replace NAFTA, he ultimately reconsidered and ratified a North American free trade agreement between the United States, Canada and Mexico to keep trade beneficial to all three countries.

It’s important to know that despite the president’s significant influence on American politics, the governors of U.S. states that trade with Canada also play a key role in trade discussions. As such, the work of Canadian federal and provincial governments on the ground with American governors has a large impact on negotiations when it comes to asserting the mutual benefits of the two countries.

The impact of U.S. elections on Canada-U.S. relations

Beyond the U.S. president’s influence on Canada-U.S. trade, it’s worth remembering that the two countries enjoy a privileged relationship that they both have a strong interest in maintaining.

On May 17, 1961, John F. Kennedy spoke about this strong bond between the two countries before the Canadian Parliament: "Geography has made us neighbours. History has made us friends. Economics has made us partners. And necessity has made us allies. Those whom nature hath so joined together, let no man put asunder. What unites us is far greater than what divides us.”

U.S. elections and the stock markets

Fortunately, crises have no major impact on investors who keep their investments in the financial markets for the long term.

The table below, produced by iA Global Asset Management (iAGAM), illustrates the evolution of the stock markets and economic growth through changes of government between the Democratic and Republican parties over the last 50 years (based on the evolution of the New York Stock Exchange S&P 500 index).

Financial markets have always shown strong growth, despite crises such as recessions, wars and the recent COVID-19 pandemic.

History proves that the global and North American economies have remained strong and resilient, regardless of who was president of the United States. It also shows that a sustained market presence means you can take greater advantage of economic growth for your investments.

Investing long term to mitigate financial losses

Investing long term allows you to calmly ride out the ups and downs of the stock markets. While short-term investments can be lucrative during favourable peaks in times of volatility, the potential for long-term returns is undeniable.

Over periods of 5, 10 or 20 years, market history shows stability and a positive trend in returns. This approach limits the impact of volatility and considerably reduces the risk of financial loss.

The impact of U.S. elections on the markets

As an example, let’s look at the November 5, 2024, elections. The scenario in which Republicans swept the presidency, Senate and House of Representatives all at once was not ruled out, but it was less likely than the scenario projecting a congress divided between Kamala Harris’s Democratic Party and Donald Trump’s Republican Party.

The Republican “red wave” scenario was what ended up happening, but despite what had been feared, New York Stock Exchange (NYSE) indices such as the S&P 500, NASDAQ and Dow Jones recorded gains in the immediate aftermath of the election. This clearly shows that a diversified approach to investing in the stock market allows you to position yourself well to take advantage of uncertainty.

In the episode The impact of U.S. elections on the markets from the podcast In Your Interest!, recorded a few weeks before the election, our experts paint a picture of the possible impacts of the election result on the markets according to the different scenarios, and talk about the aspects that portfolio managers would be watching out for.

Alex Bellefleur, Senior Vice-President, Head of Research for iAGAM’s Asset Allocation team, points out that: "If you look at the Republican sweep, that's probably a more inflationary environment. So, what you would likely see in this case is personal and corporate tax cuts and expansion of the government deficit. And you would likely see a lot more Treasury bond issuance in this case, which might push long-term interest rates a little bit higher."

Conclusion? In addition to keeping your investments in the markets for the long term, building a diversified portfolio is another way to guard against regime changes, both in the U.S. and Canada.

Stay calm no matter what happens

The long-term investment cycle is made up of many short episodes, which can be fraught with pitfalls (which are best avoided!). The fear of missing opportunities or suffering losses can drive us to act impulsively, especially during periods of high volatility.

You may have a strong urge to abruptly change strategy and adjust certain investments, trying to keep up with the latest trends or thinking that it will help you avoid the worst. However, these periods of sudden volatility are generally short-lived and follow regular cycles. While it may seem counterintuitive, it is generally more profitable to stay the course to achieve your goals without incurring financial losses.

Determining your risk tolerance… and asking for advice

To ensure a smooth ride through the sometimes-hectic world of investments, you need to match your investments to your risk limits. You can figure out your limits by talking to a financial advisor to understand what kind of investor you are. This will help you avoid impulsive or emotional decision-making when it comes to your investments.

What’s more, the experience and objective viewpoint of a financial advisor can help you invest in the stock market while remaining calm enough to make reasoned decisions. And even experts need advice on how to take a step back from their investment strategies!

Finally, it has been shown that relying on an advisor significantly increases long-term savings. Investors who work with an advisor for 15 years or more save 2.3 times more than their peers who do not1. In addition to providing support, expertise and peace of mind, having a professional by your side can help boost your financial gains.