Part of the “I told you so” glory of backing a Republican candidate in a presidential election is watching markets almost inevitably rise the day after. Efficient markets share data in real-time, and indeed the stock market from that perspective is a great, albeit imperfect bellwether for how the global business community feels about a US presidential election.
I’d argue looking at the stock market’s direction after election day, for insight into how well a president will perform for the economy, is about as precise as the Economist’s famous “Big Mac Index” for currency valuation, which compares the relative price of a Big Mac in 55 countries. (If you’ve never really thought about whether currencies are traded at appropriate levels under the theory of Purchasing Power Parity, you’re not alone — but trust that if instead, you focus on the Burgernomics, you’ll find this field of inquiry quite fascinating). It’s lighthearted and amusing, and it may have some insight. But it’s not exactly a tool from which one might make investment or policy decisions.
In general, election day results versus long-term results have not correlated well — and seem to be more connected to the idea of political stability versus the actual policy stances of a candidate. Despite the fact that Republicans are generally associated with pro-market policies, Ed Clissold, Chief US Strategist for Ned Davis research explained, “The markets tend to go up whether there is a Democrat or a Republican in the White House. When adjusted for inflation, the Dow Jones Industrial Average has gained an average of 3.8% annually under Democrats since 1900, versus 1.1% under Republicans.” Then this year, an analysis published on Forbes.com found that despite the fact that stocks rose after Trump was elected and fell after Obama, over the years the Dow had risen 28% under President Trump, compared to 62% under President Obama.
More critically, the truth is that stock market performance is divorced from the economic reality of the vast majority of Americans, particularly those who are most struggling financially. According to the Federal Reserve, only 14% of Americans own a stock directly, and just over half – 52% – own stocks through a mutual fund or retirement vehicle. For the lower half of income-earners, this falls to about one-third. And ownership is also highly correlated with race: with 61% of white families owning stock, compared to 31% of Black families and 28% of Latinx families.
So like watching the Big Mac index closely, watching stock market performance the day after an election might be amusing, but if your concern is which president will help the economy overall perform well — and in particular, perform better for working and middle-class families – here are some areas that deserve more of our attention on November 3rd, 4th, and beyond:
1. An emphasis on quality jobs — not just any jobs.
While low unemployment rates are often cited as a sign of economic strength, they can mask the fact that Americans are working harder for less, under terrible conditions. In a piece aptly titled, Low unemployment isn’t worth much if the jobs barely pay, The Brookings Institute found that “53 million workers ages 18 to 64—or 44% of all workers—earn barely enough to live on. Their median earnings are $10.22 per hour and about $18,000 per year.” And across sectors, we’re increasingly hearing stories of workers being expected to perform in inhumane conditions: whether poultry workers reporting that they had to wear adult diapers on production lines given the lack of bathroom breaks, or 90% of women and 70% of men in the restaurant industry reporting sexual harassment in the pages of the Harvard Business Review. While both Trump and Biden can point to low unemployment rates under their tenures in an executive office, either president would need to do some serious work to ensure American jobs provide dignified working conditions, at wages that allow them to take care of their families, and ideally, opportunities for advancement and ownership to better share the spoils of a rising market.
2. Healthcare and education need to be accessible and affordable.
This election in many ways became a referendum on the Affordable Care Act, which was passed in Obama’s second year in office. After already four years in office, Trump has not made clear how he would replace ACA and most worrisome for the 54 million Americans with pre-existing conditions, how they would access insurance. “We don’t know where the president is on this,” says Douglas Holtz-Eakin, president of the American Action Forum, a conservative think tank. The economy can’t succeed without healthy workers — so if ACA is struck down in the Supreme Court on November 10th, expect both people and markets to take a hit. And if the ACA stays; there will still be work to be done by any administration to bring down costs and improve the quality of care.
Similarly, education is the backbone of economic opportunity for individuals, while also being critical for America’s competitiveness in the market internationally. And yet, over the past decade, public education has become even more unaffordable, with over half of public universities requiring families to contribute at least $10,000 a year (despite, as noted above, that this may be more than half of their family’s earnings). And in global studies conducted by the OECD, the US has fallen in the lower half of performance in math, science, and reading. Results so bad, that despite being part of an administration that typically presents America’s strength, Education Secretary Betsy DeVos said the following in response: “The bottom line is there has not been a single study that shows American education is improving enough… Worse yet, scores for our most vulnerable students continue to decline. We are being outpaced not only by our global competitors like China and Russia but also by countries like Estonia, Finland, and Canada.”
This next administration needs to address America’s social mobility gap, which is largely driven by both education inequity across all social groups and persistent structural racism in labor markets: one Pew study found that “Black and Hispanic women with a college degree earn only about 70% the hourly wages of similarly educated white men.”
3. Housing costs need to stay in line with wages, and more families need access to ownership.
Owning a home has always been the bedrock of the American dream. More recently, though, Americans have fought simply for a decent, affordable place to live: with over 550,000 Americans every day since 2016 experiencing homelessness any given night, and 1 in 4 Americans spending more than 50% of their income on rent. This goes up to 72% for low-income households making less than $15,000 a year, and 43% for those making between $15,000 and $30,000.
Much of housing policy is local, but the federal government can provide incentives, whether via support from the executive branch or leadership in the legislature. Many leading policy ideas can be found in Senator Warren’s American Housing and Economic Mobility Act, which has been introduced but not yet taken to a vote. Ideas include greater down payment assistance in both rural and urban areas, block grants as incentives for local communities, and revising the 1977 Community Reinvestment Act to particularly address the racialized impacts of lending. Moody’s Analytics reviewed its potential impact, and “determined that the bill would lower rents by 10 percent in 10 years,” concluding the bill could “go a long way towards addressing this mounting housing crisis.”
Treating markets as a leading indicator of economic health, rather than a lagging indicator of our broader economic reality, can lead us to focus on the rush of the slot machines while the real money is to be made on the poker table — with patience, strategy, policy, and diligence. Ultimately, corporations need regulation so that when economies rise, communities do too. And ultimately, we need economic policy that doesn’t only cater to the wealthy who essentially own the market; but to the majority of Americans, who have to live in it.
Full disclosures related to my work are available here. This post does not constitute investment, tax, or legal advice, and the author is not responsible for any actions taken based on the information provided herein.
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