How the Elections Will Impact Your Savings

Photo (cc) by brianc

There’s no doubt that investors thought a GOP mid-term victory would be good news for stocks. For proof, simply note the Dow run-up in the months leading up to the elections.

When I wrote Why You Should Buy Stocks and Houses Now back on July 6, the Dow was at 9,686. On election day it opened at 11,125 – 15 percent higher. Granted, the looming Republican victory wasn’t the only positive influence on stock prices, but there’s little doubt that it played a role in market optimism.

But now that the victory is at hand, will the economy and its proxy – the stock market – continue to head higher? While the jury is still out, there’s cause for both optimism and concern. Optimism because stocks have historically done well in the year after mid-term elections. Concern because the potential gridlock ahead could be devastating.

The bad news: gridlock during a delicate time

Now that Republicans have a majority in the House of Representatives, the ability of the government to act quickly or decisively to stimulate the economy could be compromised. While this has often been a good thing in prosperous times, it could be a dangerous thing when times aren’t so good. Potential areas where a stand-off between the White House and the Congress could hurt more than help:

  • Bush tax cuts: As we said in our September 27 story Should the Rich Pay Higher Taxes? Republicans favor keeping all the Bush-era income tax cuts in place, while the President wants to let them expire for Americans earning more than $250,000 per year. This problem will have to be resolved prior to the newly-elected Congress taking their seats – if no agreement is reached and nothing is done by year-end, the tax cuts will automatically expire for everyone. And that could cripple the recovery, since it would leave us all with less disposable income to spend. Likely scenario? The cuts will be extended for all, but only for one year – then the partisan bickering will begin again.
  • An end to stimulus spending: With unemployment still hovering at 9.6 percent, some economists believe that additional government spending may be necessary to create jobs. But stimulus spending, like the recently announced $50 billion plan to Renew and Expand America’s Roads, Railways and Runways, is precisely the type that the GOP’s Pledge to America vowed to end. Also likely: Congress may not extend unemployment benefits to the nation’s 6 million long-term unemployed. Less spending could hurt the economy, and in turn the stock market.
  • Financial regulation and healthcare reform: Many Republicans campaigned on repealing financial regulation and healthcare reform – a movement many Wall Street companies support, especially banks, brokerages, and insurance companies. But with Obama still holding veto power and Republicans without enough votes to override a veto, the result may be nothing more than uncertainty. And as much as the stock market hates government regulation, there’s something it hates more: uncertainty.

In short, as the reality of a Congress unable to act settles in, the stock market might take a look and not like what it sees, especially if the future is uncertain or the economy weakens further and the government is unable to intervene.

All the news isn’t bad

According to Fidelity Investments, stocks soar the year after midterm elections, no matter which party is in charge or whether or not there’s a divided government. From 1950 to 2009, stocks averaged 11 percent per year. But in the year following mid-term elections, the average return was 23 percent, and that return didn’t vary widely whether there was harmony between the White House and Congress or not.

Another possible positive: potential compromise between the White House and Congress. Lawmakers in both parties could come together and vote on tax reforms that might benefit corporations, individuals, and the economy.

And there are areas where Republicans and the President have common ground. For example, the White House is currently working on a free trade agreement with South Korea – something many Republicans could support.

Here’s what I’m doing

As you may already know, I maintain a public, real-money portfolio of stocks I own. I’m a long-term investor, not a trader, and I’m not making any immediate changes. Now that the elections are behind us, history would suggest that January will mark the start of a good year. If the economy is already well on the road to recovery – and I believe it is – a little gridlock might be irritating but not necessarily bad for our economy. Nor would reducing government spending and lowering our massive federal deficit, something both sides of the isle have said they want.

But if the economy shows signs of weakening and Uncle Sam is unable to help due to partisan bickering, all bets are off.

Disclosure: The information you read here is always objective. However, we sometimes receive compensation when you click links within our stories.

Read Next
Drivers Give These 5 Car Insurers the Highest Marks
Drivers Give These 5 Car Insurers the Highest Marks

One company claimed the top ranking in several categories.

13 Small Gadgets Under $20 That Make Life Better
13 Small Gadgets Under $20 That Make Life Better

These inexpensive electronics will make your day-to-day life a little easier — and happier.

5 Secrets of Seniors Who Keep Their Minds ‘Young’
5 Secrets of Seniors Who Keep Their Minds ‘Young’

Here is why some seniors’ brains work as well as those of people who are decades younger.

What Brand Makes the Best Rechargeable AA Batteries?
What Brand Makes the Best Rechargeable AA Batteries?

The best battery depends on what you need it for and how big your budget is. Here’s how to find the cheapest brand that will do the job you need.

15 Great Amazon Finds You Can Buy for Less Than $5
15 Great Amazon Finds You Can Buy for Less Than $5

These products offer big value at a small price.

View this page without ads

Help us produce more money-saving articles and videos by subscribing to a membership.

Get Started

Most Popular
7 Kirkland Signature Items to Avoid at Costco
7 Kirkland Signature Items to Avoid at Costco

Even if it seems you save a bundle buying Costco’s Kirkland Signature brand products, they may not be the bargain they appear to be.

If You Find This Thrift Shopping, Buy It
If You Find This Thrift Shopping, Buy It

Whether you resell it for a big profit or add it to your own wardrobe, this type of clothing is a hidden steal.

3 Ways to Get Microsoft Office for Free
3 Ways to Get Microsoft Office for Free

With a little ingenuity, you can cut Office costs to zero.

Organize Your Home With These 10 Thrift Store Finds
Organize Your Home With These 10 Thrift Store Finds

Resolve to be clutter-free in 2021 with these secondhand purchases.

9 Things You’ll Never See at Costco Again
9 Things You’ll Never See at Costco Again

The warehouse store offers an enormous selection, but these products aren’t coming back.

10 Cars You Are Most Likely to Keep for 15 Years
10 Cars You Are Most Likely to Keep for 15 Years

The cars that owners hold onto the longest have one thing in common, a new study shows.

11 Laws You Could Be Breaking Without Knowing It
11 Laws You Could Be Breaking Without Knowing It

Seriously? Fibbing about the weather is a crime? This and other little-known legal traps await the unwary.

Is This Treatable Condition Causing Your High Blood Pressure?
Is This Treatable Condition Causing Your High Blood Pressure?

Researchers say too many doctors are overlooking this potential source of hypertension.

13 Things Seniors Can Get for Free — or Almost Free
13 Things Seniors Can Get for Free — or Almost Free

There are many ways to get cheap or free services and goods after reaching a certain age.

Taking a Multivitamin? Here’s Why You Should Reconsider
Taking a Multivitamin? Here’s Why You Should Reconsider

A new study has bad news for the millions of Americans who spend money on multivitamins.

21 Items to Cut From Your Budget That You Won’t Even Miss
21 Items to Cut From Your Budget That You Won’t Even Miss

Start off the new year by implementing these small-but-smart savings strategies. They’ll soon add up.

Internet Providers Can’t Charge You for This Anymore
Internet Providers Can’t Charge You for This Anymore

Starting this month, your ISP no longer can bill you for this fee.

9 Things You Should Never Leave in a Car
9 Things You Should Never Leave in a Car

Thinking of leaving these possessions in a car? Prepare for unexpected consequences.

Prepare to Pay More for These 31 Drugs in 2021
Prepare to Pay More for These 31 Drugs in 2021

More than 700 prescription medications have seen price hikes so far this year. Here’s a look at the worst.

15 Painless Ways You Can Cut Costs in 2021
15 Painless Ways You Can Cut Costs in 2021

Follow these tips to save, so you’ll have money for things that really matter.

5 States Lowering Taxes This Year and 2 Raising Them
5 States Lowering Taxes This Year and 2 Raising Them

State personal income tax rates, brackets and deductions just changed in these places.

This Surprise Factor Can Raise Your Risk of Dementia
This Surprise Factor Can Raise Your Risk of Dementia

Nearly half of U.S. residents may face this threat.

7 Tricks to Cleaning Your Bathroom Faster
7 Tricks to Cleaning Your Bathroom Faster

These tips can get your bathroom sparkling with little time and no elbow grease.

20 Amazon Purchases We Loved in 2020
20 Amazon Purchases We Loved in 2020

These practical products made everyday life a little easier last year — and will do so in the new year, too.

View More Articles

View this page without ads

Help us produce more money-saving articles and videos by subscribing to a membership.

Get Started

Add a Comment

Our Policy: We welcome relevant and respectful comments in order to foster healthy and informative discussions. All other comments may be removed. Comments with links are automatically held for moderation.