-
The election outcome is unlikely to have a major impact on stock prices, Bank of America said.
-
Stock market performance is determined by earnings growth and not by shifts in the political landscape, the bank said.
-
Past policies have had unexpected consequences, which underlines the importance of sustainable profit growth.
The outcome of November’s presidential election should have little impact on the direction of stock prices, Bank of America said.
In a note on Friday, Savita Subramanian, a Bank of America strategist, said the stock market rarely cares which political party controls the White House.
Instead, investors’ focus should be entirely on earnings growth.
“Accelerating profits is much more important than who sits in the Oval Office,” Subramanian said.
Moreover, targeted policies from lawmakers on Capitol Hill have often had the opposite effect on a sector than investors expected.
For example, when Donald Trump came to power in 2017, energy stocks were seen as a likely winner due to his friendly attitude toward oil drilling, while renewable energy stocks were seen as a likely loser.
Instead, the energy sector was the worst performing sector when Trump was in office, losing 29%, while the S&P 500 rose 83%. Meanwhile, the clean energy sector has increased 306% during Trump’s presidency, according to data from YCharts.
When President Joe Biden took office in 2021, many investors viewed the traditional energy sector as a likely loser due to Democrats’ typical unfriendliness toward oil companies, while clean energy stocks were seen as likely winners.
Today, the opposite is true: Traditional energy stocks have been the best-performing sector during Biden’s presidency, up 139%, while the clean energy sector is the worst-performing sector, down about 55%.
“Even targeted policies have sometimes had opposite results than expectations,” Subramanian said, adding: “There are nuances.”
This time, Subramanian said investors’ expectations about the impact on the stock market based on who wins the presidency could collapse again.
For example, while a Republican attack on the White House and Congress could be seen as good for Tesla stock as CEO Elon Musk has warmly embraced Trump and the Republican Party, it could be negative as tax breaks for electric vehicles are likely to run out would be at the same level. risk.
Ultimately, Subramanian and her team expect the stock market to rise in 2025, regardless of who wins the November election.
That’s because she expects 13% annualized growth in S&P 500 earnings per share next year, and earnings growth has historically been the biggest driver of stock market gains.
“Profits are more important than politics,” Subramanian said.
Read the original article on Business Insider
