America is a country that is advanced in a political and economic sense, which allows its citizens to live a far better life than most of the other people in the world.  Both politics and economics are influential factors on a person’s daily life and are extremely complex topics. In this essay, politics will be defined as political elections and approval ratings of incumbent politicians in order to simplify the argument.  For a similar reason, when talking about the economy sometimes it will mean the overall economy, but we will mainly focus on the stock market. The relationship between the two overarching categories is argued heavily and is far from clear to most citizens.  As a finance and economics major with aspirations to be a financial planner and savvy stock market investor, this research was done in hopes to better understand how politics affects the economy.  People that follow politics, invest in the stock market, and rely on media for accurate news about elections will all benefit from this paper.  Economics has a huge impact on political elections and approval ratings, but politics as defined above does not have an impact on the economy, and knowing this will allow the American population to be able to predict election results and become better investors.

The economy, especially the stock market, is affected by many factors, but political elections are not one of them.  In an article posted on Investopedia, the author, David Harper, looks at all the factors that influence the stock market.  He, just like most people, acknowledges that although no perfect formula is known at the moment to predict the future of the market, there are certain “forces [that] fall into three categories: fundamental factors, technical factors and market sentiment” (Harper).  Later in the article, he moves on to define each category and what aspects fall under each umbrella.  Not once does Harper include or mention political elections, or any sort of politics, as an influence at all.  This is most likely because the stock market is changing every day and “prices are the outcomes of volatile human expectations, shifting the supply and demand lines, and causing prices to oscillate” (Wong).  The changes in prices come from people reacting to certain events and thinking that a particular stock or business will perform better or worse in the near future. Although it may seem like the economy should be impacted based on who wins a presidential race because people’s emotions change based on election results, this is not the case and has been proven throughout history.  Some people may fear that if the candidate that is from the opposing party wins the election the economy will tank and pull money out of the market, but there are just as many people, if not more, who will believe more in the economy and invest more.  Therefore, the expectations from both sides will cancel each other out and keep the stock market from fluctuating too far from the prices before the election.  The economy and the stock market are affected by numerous factors but politics is not one of them.

 In the most recent election, the two leading candidates through the primaries were always Hillary Clinton and Donald Trump for their respective political parties.  In April 2016, one author wrote “as the chances of Mrs. Clinton’s nomination have strengthened, the Dow Jones industrial average has soared, rising 2,344 points, or 15 percent, from its recent low on Feb. 11” (Eavis).  Eavis believed that the primary was going to be her toughest race and that she would easily beat out any republican candidate before the primary elections were even over, showing that the author was clearly writing with bias.  Most people predicted that Clinton would beat out Trump and her supporters called the surge in the stock market leading up to the election the “Hillary rally.”  Many journalists believed that if Trump could pull off an upset in the election that it would spell doom for the stock market and our nation’s overall economy.  Experts and analysts across the country like Mark Luschini, the chief investment strategist at Janney Montgomery Scott, made comments such as, “if it seems as though he's going to be elected president or polls show that he's gaining on Clinton, the market would respond negatively as this is a factor currently underpriced in the market” (Brecht).  After this past election, which was the most polarizing that the millennial generation has been able to witness, many people reacted hastily.  People were ecstatic and others were left terrified, so if the stock market was truly affected by elections, this would have been the one to clearly show the impact.  A few months into his presidency now, we can see that is not the case at all.  Previously learning that there are several factors that impact the stock market leads us to realize that it was not Hillary’s success in the polls, rather it was the other factors that created the recent success of the market.

Commonly, people’s political views are based off their economic ideas and status.  Democratic supporters tend to believe that wealth should be distributed more evenly and that money should be taken from the rich to help the poor.  We can see that this holds true in elections because places that experience poverty at a higher rate typically vote for the democratic candidates.  On the other hand, people that believe individuals earn what they work for and should not be given handouts usually align with the republican party.  Regions that are wealthier and do not want to give up their money to others are proven to vote for republican candidates.  This is exemplified in the quote, “voters who own more property, in particular high-risk assets, are held to be more right-wing in their political preferences” (Nadeau).  On the political spectrum, right-wing refers to more conservative ideology which is the belief of many republicans.  The quote from Nadeau shows again that economics affects political ideology, which in turn will affect political elections.  Throughout history, a person’s economic status has had one of the largest influences on an individual’s political views, “to the extent that groups gain economic power, political power will follow” (Buttonwood).   Even in our country, we used to restrict people’s right to vote directly by having poll taxes and now indirectly due to the need of an ID and a way to get the election center.  Our nation has always discriminated against and stopped poor people from voting, which again illuminates that economic status impacts the outcomes of elections. Additionally, people experience life in a cycle that follows economic trends, which can affect their ideas at the time of an election.  For example, if the economy is doing extremely well leading up to the election, it is likely for voters to vote for a more hands off approach to business, which is typically a Republican ideal.  Patterns are formed frequently and that is exactly what one researcher believes as he said, “fluctuations in prices are a natural process of changing expectations, thereby leading to cyclical patterns” (Wong).  There is a term that Wong talked about is known as the Presidential cycle and he claims that the stock market follows a four-year cycle that coincides with election years.  He believes that the economy reacts to the outcome of the election every four years, when in reality it is the elections that follow the trends of the economy.  Yes, there is a cycle, but its nature is for elections to be decided by the status of the economy leading up to the race.

Up to this point, there has been a significant amount of information and ideas packed into a few paragraphs, so we should take time to pause and reflect.  Now people understand that the economy is impacted by several factors, but political elections are not included in any of those influences.  Additionally, we have seen how analysts and journalists predicted this past presidential election was going to turn out based on the success of the stock market and Hillary’s success in the polls.  Those predictions turned out to be wrong because there was no correlation between the economy and Hillary, they were simply biased.  Next, we learned that people’s political beliefs are largely based off their economic status and amount of wealth.  Finally, this essay has moved on to talk about how most things in life follow a cycle or a pattern, and this holds true for the stock market.  However, the fact that the stock market follows an election cycle is not true, rather people’s economic status changes with the ups and downs of the stock market causing their ideals to change.  Through these points we can see that economics can be a deciding factor in an election race.

Another way that illustrates that politics is greatly affected by economics is by looking at the approval ratings of incumbent politicians at any given time.  Shown in many studies, the approval ratings fluctuate in a comparable fashion to the stock market.  Although they act similarly, experts suggest that “as economic conditions improve, the president's approval ratings increase. When the economy is in decline, the president's approval drops” (Fauvelle-Aymar).  The changes in approval ratings are in response to the changes in the stock market and overall economy.  It makes sense that ratings would change due to a change in the economy because if the economy rises, then people’s standard of living will also rise, causing them to believe their politicians are performing well and helping the country.  Conversely, if the economy starts to decline, then more people will become poor and unemployed, and they will then blame those circumstances on whoever is in charge.  Multiple experts performed research together and concluded that “it is not market changes that matter as much, but the speed of growth or decline” (Fauvelle-Aymar).  If the rate of decline in the market is slowing down that means that the economy is beginning to strengthen and will hopefully turn around soon. People will obviously be pleased with the government and give a higher rating if the market is growing at a fast rate, which would indicate that people’s money is now worth more in the market and that they will be able to make a profit.  Using approval ratings as an insight into the relationship between politics and economics allows us to see that the way people view current politicians is largely based off the current economic status of individuals, as well as the entire country.

Generally, people that believe that political elections cause the stock market and economy to change whether it be for better or worse use a significant amount of predictions.  Using examples from the past as shown above, we can see that these predictions do not hold true.  Although there are factors that can be used to predict how the stock market and economy will change, politics is not one of them.  Even people with a wealth of knowledge believe that elections directly impact the stock market, one example is Wing-Keung Wong, the Chair Professor of the Department of Finance at Asia University.  He has written that “due to the President's overwhelming influence on both domestic and world affairs, the ripple effects of Presidential elections are staggering. Hence, it should not come as a surprise that stock prices, often called a leading indicator of the macroeconomy, are affected by Presidential elections” (Wong).  It is true that the President is one of the most powerful people in the world and that he does have influence over many things.  However, the economy is based off the status and expectations of the entire population of the world and the President cannot possibly have enough impact to change the views of everyone in the world.  Additionally, in a video posted by Studies Weekly, the narrator of the film said “of course the president can’t really control the economy, there are too many other influences that affect the market as well.”  This shows that no matter how much power one person has they cannot directly impact or alter the status of the stock market because there are not only numerous factors, but much more important ones as well.

It is reasonable for people to believe that political elections alter that state of the stock market and economy because “unexpected and potentially destabilizing political events tend to make traders and investors nervous, which then sometimes leads to volatility in financial markets. But as history has shown time and time again, these events generally do not have a sustained impact on markets” (Holodny).  Through his quote we are able to see that the only reason why politics has any impact at all on the market is because investors react hastily and with their emotions instead of thinking logically.  It is not the actual event that impacts the economy, rather the reaction to that event, so we should learn from this and try to keep our emotions in check and keep from panicking.  Just in this past election, many journalists thought that if Trump were to win the election that our economy would go down the drain, but we can now see that our stock market has reached all-time highs under Trump’s presidency.  The media did a terrible job predicting and reporting this past election because they are so filled with bias and it causes viewers to be blinded from what is happening.  If the journalists and media knew that the economy can be used as a predictor for political elections, they would have had much more accurate portrayal of the presidential race.

With this research, society will be able to improve.  It is important that our voters are as well educated as possible, and “an obvious solution is to improve the information available to voters so they can judge and condemn the partisan nature of myopic economic policies” (Nordhaus). Citizens will be able to hold journalists and the media accountable, as they will be more informed.  In turn, this will cause media sources to improve the quality of their news if they want to stay in business, which will lead them to providing useful information during future elections.  Additionally, this will help the general population become better investors because they will not be extremely polarized by election outcomes.  Just because a certain candidate wins a political race does not mean that it will impact the economy directly.  Also, stock brokers and traders will be more informed after reading this and will be able to perform their jobs better.  This means that their clients will also benefit from this essay because the people advising them will be smarter and able to suggest more educated decisions and make more money.  American citizens will be better educated, receive better services, and make more money after realizing that political elections do not impact the status of the economy or the stock market.

Economics and politics are extremely difficult topics to fully comprehend, but understanding the relationship between the two can give us great insight into those complexities.  Realizing that the economy affects the results of political races illustrates just one of the factors that influences elections, but it is the most important.  The activity of the stock market, current economic status of a country, and wealth of a person are all aspects of the economy that can help predict election results and cause people to vote a particular way. People should be better informed on these two topics, especially how they are related, because their lives are directly impacted by these on a daily basis.  Some people might think this only relevant when the presidential election comes around, however, this research impacts every citizens’ life day in and day out, not just every four years.  This is because if people become smarter investors around election times, then they will be able to make more money and be able to spend more.  Additionally, the people that we elect can influence our lives in many ways, excluding economics reasons.  In the future, people will be more informed about the systems that make our nation run and thrive, leading to a more transparent government and improved society.
