Will the Stock Market Crash if Joe Biden is Elected President?

A lot of people are concerned that if Donald Trump doesn't get re-elected, then we're going to see the stock market come crashing down, because Trump is very much focused on policies that help out businesses, whereas Joe Biden is more focused on the average American. So what's the deal here? If Joe Biden wins the presidency, are we likely going to see the value of our investments drop? Well, let's find out.

Now, one thing that we need to address before we get stuck into the video is that nobody actually knows what the stock market is going to do in the short term. It was earlier in the year when we were exactly here that people thought that we were going to go into a very deep recession; the stock market was going to continue crashing. On the flip side, it was only a few years ago when we were sitting here that people were predicting an imminent recession; that all hell was going to break loose and the stock market was going to come crashing down. So when you're watching these videos from various YouTubers or even if you're watching CNBC, or even some famous investor, then it's important to remember that over the space of a few weeks or even a few months, nobody actually knows which way the market is going to go. It's very unpredictable. We could see Joe Biden win the election and the stock market could go up, or it could go down. On the flip side, Donald Trump could win the election and the stock market could go up, or it could go down. That's just the reality.

However, with that said, a lot of people are of the opinion that if Trump gets re-elected, then we are going to see the stock market continuous charge, whereas if Joe Biden gets elected, then we're going to see the stock market weaken or crash. Now, immediately after the election, there is absolutely no real reason for the stock market to move up or down. Anything that does happen in the stock market is just purely psychological, based on what people think is going to happen in the future. So any moves in the market in the first few weeks after the election is purely anticipatory. It's just a sign of what investors believe will happen next.

But if we look out months after the election, then it's a very real possibility that we'll start to see some different policies being implemented that will have a real effect on businesses and thus will likely impact the stock market. And it's worth trying to understand the likely differences in policies between Donald Trump and Joe Biden to give us a better inkling, a better understanding of what the market is likely going to price in immediately after the election. The most important two areas of policy that we, as investors, need to be looking at are economic policy and tax policy.

The first area of policy that we're going to tackle is economic policy. So we're talking changes to the rules that will influence the economic environment that the companies in the stock market will have to operate in. Now, the current time, all the chatter around economic policy is very much related to dragging the United States out of this recession that it finds itself in due to the pandemic. So we're talking about infrastructure spending, jobs recovery, increased unemployment insurance, and paycheck protection programs. Many of these factors will, in one way or another, influence the stocks that we own and influence the stock market.

For example, both Trump and Biden have proposed big stimulus spending on infrastructure across the next decade, both plans worth well over a trillion dollars. Biden has a detailed plan worth over 1.3 trillion dollars over 10 years. So any company directly related to that infrastructure plan or that is tasked with helping construct or bring this infrastructure to life stands to benefit. If you look deeper into Biden's infrastructure plan, then you find 400 billion dollars devoted to a new federal program for clean energy research and innovation. So this could help a lot of companies that work in and around that space. There's also a hundred billion dollars pledged to modernize schools, 50 billion on repairing roads, bridges, and highways, 20 billion on rural broadband infrastructure, and 10 billion for transit projects that serve high-poverty areas.

Now, that's a lot of money that will stimulate a lot of jobs and will also provide a lot of work for a lot of different companies. Now, on the other hand, Trump has also announced that he wants to implement a big and bold infrastructure plan worth over two trillion dollars. However, when you actually start doing some research, there are a lot less details around what this plan is actually going to consist of, as opposed to what Biden has set out through his campaign.

Now let's move on to another hot economic topic right now, and that is, of course, jobs. Now, beyond the jobs that were created through this big infrastructure spending, Joe Biden has also proposed some changes to legislation to help increase middle-class jobs. This would be done by funding programs such as the New Markets Tax Credit, the Economic Development Administration, and the Community Development Financial Institutions. Biden's also focused on increasing the federal minimum wage to 15 dollars an hour to help more workers attain at least a decent wage.

On the other hand, Donald Trump has said that his infrastructure spending should go a long way to helping the recovery of jobs. He's also proposed the unconventional move of the government buying four to five years' worth of airline tickets to help provide a little bit of cash to that industry to help it keep its workers. Furthermore, he's also implemented initiatives such as halting foreign workers' visas to try and keep jobs in the hands of Americans.

So far, you're probably thinking after that little segment on economic policy that Joe Biden's plan seems a lot more thorough and a lot more detailed as opposed to Donald Trump's, and that's true, because overall Joe Biden's plan is to spend money in targeted areas to try and help the economy recover. Whereas Donald Trump's plan, which I'm going to talk a little bit more about in a second, is more related to keeping the corporate tax rate low so that these companies are more cashed up and thus incentivized to spend and invest.

So two different approaches, but let's hope either way that this does lead to economic stimulation, the production of more jobs, and more productive businesses, because overall that gives the market, the stock market, a stronger foundation. Then, as investors, it's our job to have a look at these two different approaches and decide which one we believe is going to better achieve the goals.

Now that's the first area, economic policy. Now, if we go a little bit deeper into economic policy, we can start talking about a very specific area that is tax policy. Tax policy is going to have more of a direct impact on the businesses that we are investing in. It's going to have more of a direct impact on the stock market. Now, as we know, the government's costs include things like social security and Medicare, defense, and education, and so on. In order to fund these systems that are so vital to America, the government needs to generate tax revenue. The way that governments around the world generate tax revenue is they tax citizens, and then they tax corporations.

One thing you've probably noticed over the past few years is that the Trump administration is very keen on trying to lower the corporate tax rate. On November the 2nd, 2017, the corporate tax rate was lowered from 35 to 21. For many companies, this meant that at the end of the year, they had less to pay in tax, which means they keep more of their profits at the end of the year. That means that they are more cashed up to spend, invest back into their own business, or they could pay that money out to their shareholders.

For example, with this tax cut, Boeing was able to save 1.1 billion dollars, and after Donald Trump was elected, they raised their dividend 20 and boosted their buy-back plan to 20 billion dollars. Now, if Trump is re-elected, it's highly unlikely that we will see any backtracking of that corporate tax rate, which is good for business. However, if Biden is elected, then his plan is to actually raise the corporate tax rate from 21 up to 28, which is less than the 35 percent that it was at a few years ago, but it is still quite a bit more than where it sits currently.

Furthermore, Biden has also proposed a 15 minimum tax on book income, and the idea here is that it actually prevents any corporation from weaseling their way out of paying any tax, so all corporations will have to pay at least some tax, this minimum of 15 percent. Then, on top of these points, investors will also see differences in capital gains taxes depending on who's elected, which will have a broader impact on the stock market. Trump's plan is to reduce the top capital gains tax rate from 23.8 down to 15 percent, whereas for Joe Biden, he plans to keep the capital gains tax as it is. However, for people that earn over a million dollars a year, then their capital gains tax will be the same as their income tax, which means that these people will have a capital gains tax rate of 37.

So overall, Trump's plan is to give everyone a little bit of a bonus when it comes to capital gains tax, whereas Biden's plan is to just keep things the same as they are now, except if you're a high-income earner, then you're going to pay a little bit more. So overall, it's estimated the Biden's plan will actually raise around 4 trillion dollars of revenue for the government between 2021 and 2030, while it's estimated that Trump's plan will actually cost the government 1.5 trillion dollars.

However, if we look at this from a stock market perspective, then remember four trillion dollars being raised means that the corporations are going to get taxed more under Biden's plan, which means that at the end of the year, all these corporations that some of these corporations we are investors in are going to have less money to reinvest back in their own business or pay out to their shareholders, etc. Therefore, it's likely that from a stock market perspective, a tax plan which keeps the corporate tax rate lower will probably be better received by the market, whereas a tax plan where the corporate tax rate goes up is likely going to be received a little less enthusiastically.

Now, an important thing to consider is that the president doesn't get to make policy unilaterally. In order to pass legislation, they need support from both chambers of Congress. This is why it has been hard for Donald Trump to pass any sort of recovery packages. Currently, the House of Representatives is held by the Democrats, whereas the Senate is held by the Republicans. So if Donald Trump and the Republicans want to get anything passed, then they need to make a deal with the Democrats.

Now currently, both 538 and The Economist have the Democrats with a 99 chance of keeping control of the House of Representatives. Then in the Senate, they have the Democrats with about a 75 chance of winning control. These forecasts also have Joe Biden at about a 90 chance of winning the presidency. So if we just take these numbers at face value, or even a little bit conservative, we can probably assume that there's about a two in three chance that the Democrats will have total control of the government.

Now, the market tends to react pretty strongly to things that it is absolutely certain about. So if we get a split Congress again, with the Democrats in control of the House, and then the Republicans in control of the Senate, it doesn't really matter who wins the presidency; the stock market reaction is likely going to be fairly muted because it's kind of like what we've already got. However, if all three elections are won by the same party, then that is a much bigger stimulus for the stock market to start moving around because it means that there is going to be much more clarity over what the likely economic policy is going to be moving forward.

So if we start wrapping things up, overall Donald Trump's plan is very much around lowering the corporate tax rate and lowering the tax rate on wealthy individuals. Now, that could very well lead to these big companies that we are investors in retaining more of their earnings, keeping more of their own profits at the end of the year, which can help them hire more people, reinvest back into their own business, pay out to shareholders, and that could be good for us, and it could also stimulate the economy.

Then on the other hand, Joe Biden's plan is to instead raise the corporate tax rate and use this money to invest in infrastructure and provide economic support programs to normal people. The idea here is that eventually this money will return back to our companies, but it will be because people have gone out and spent the money, as opposed to just getting a big tax cut. So it's a different way of looking at increasing company profits.

So overall, both plans are designed to help stimulate the economy, but they just do it in different ways. Obviously, Donald Trump's plan to cut tax is very effective and it works immediately, because immediately companies get to save money. However, it only works once. Then, if you need further relief, then you have to do another tax cut. Whereas Joe Biden's plan may not work straight away; it may take a little while for that money to start flowing around the economy again, but it's a plan that doesn't need definite designated stages of relief. It's just one strategy that might take a little bit more time to start working.

So what's my take on this situation? Do I think that the stock market will crash or weaken a lot if Joe Biden is elected? Personally, like I said at the top of the video, you definitely can't predict it. You cannot predict what the stock market is going to do in the short term, so take this with a massive grain of salt. But for me, when I look at this situation, I don't see there being any reason why the stock market should crash if Joe Biden wins the presidency.

At the end of the day, yes, Donald Trump's plan is to cut taxes and keep taxes low, and that directly benefits our companies. And Joe Biden's plan is to raise the corporate tax rate; however, it's not a huge increase, okay? It's even less—it's still going to be less than what the corporate tax rate was just a few years ago. So it's certainly nothing drastic. Then when I actually look at the economic policies between the two, the thing that definitely stood out to me while doing the research for this video is that Joe Biden's plan is definitely a lot more considered, a lot more formulated. It's a lot more structured, and it gives you the impression that they actually have a concrete set in stone plan of what they're going to do to help stimulate the economy and help drag America out of this recession.

When you look at Trump's plan, it seems very much less detailed, right? There's a lot less detail. You hear things being said here and there, but when you actually try and get into the nitty-gritty and find dollar values and what they're going to spend it on, what different areas they're going to support, that's where it starts to get a little bit harder to understand.

So overall, if Biden were to win the presidency, then I really don't think we're going to see a huge reaction out of the stock market. However, that is just a big guess on my part; I have no idea what's going to happen. That's just what I would expect to happen. Anyway, guys, that is it for this video. I'd love to hear your opinion down below, so definitely let me know. Do you reckon that, you know, if Trump wins, this is going to be great? The market's going to surge because the tax rates are staying low. Do you think if Biden gets in, the fact that he's going to raise corporate taxes will have a negative effect on the stock market?

I'd love to hear from you guys, so definitely, you know, there's not one right or wrong answer. Of course, we're kind of just making predictions here, we're guessing what's going to happen in a couple of weeks time. So definitely let me know; leave a comment down in the comment section below, leave a like on the video if you enjoyed it or if you found it useful. And of course, if you're interested in learning about how I go about my investing, my own personal investing strategy, then check out the links down in the description below. You can check out Stock Market Investing for Beginners, or if you want to pick individual stocks, you can check out Introduction to Stock Analysis.

They're both really in-depth courses that take you through my investing strategies, so if you're interested in that, definitely check it out. But that's it from me for today, guys. Thank you very much for watching, and I'll see you all in the next video.