The American stock market, where so much of the world’s business takes place, is affected by many different forces and factors. Political conditions affect the stock market all the time.
As everyone knows, American politics is dominated by two political parties, the Democrats and the Republicans. Whichever is in power will set policies that will more than likely have an impact on the stock market. That’s because whichever party is in charge will manage the economy and set policy. That policy will have a direct impact on both the economy and the stock market. Deregulation, a big cause of the current economic collapse, is favored by one party or the other. The current economic collapse has caused the stock market to go into free fall, with stocks losing trillions of dollars in value. Other political decisions that affect the stock market include interest rate policy as set by the Treasury Department. Record-shattering budget deficits, also a result of political policy, will have an impact on the stock market in a negative way, signaling to the world markets that the government does not have its books in any sort of order.
The two major political parties have associations regarding their overall fiscal policy priorities and ideas. The stock market will see who has been elected president, for example, and have a general sense that he or she will be “good for business,” and will thus feel more confident about what’s to come. Or perhaps the new president will be seen as tougher on corporate tax issues, like loopholes, thus signaling a fairer but less business friendly agenda.
In terms of international politics, world political conditions affect the stock market in big ways. War in the Middle East, for example, threatens the world’s oil supply. When that happens prices for this commodity rise, and when the price of oil rises the price of all goods rises, and that means higher inflationary pressure.
To learn more about how political conditions affect the stock market, consult with your financial advisor.