Trump Says Democrats Mean Another 1929. He Said Much the Same in 2020, and Stocks Rose 79%

On January 6, 2021, the S&P 500 was up 1.5% on hopes that Democratic wins in Georgia’s Senate runoffs meant more stimulus. Then rioters got inside the Capitol and interrupted the electoral vote count. The index gave back part of that gain and still closed up 0.6%, the Dow set a record, and two days later the S&P was another 2% higher.

If a mob in the Capitol couldn’t knock that market down, I have a hard time getting worked up about Tuesday’s midterms, even if control of the Senate comes down to two guys named Dan Sullivan in Alaska.

Unless you’ve successfully unplugged from this election cycle, you already know about the two Dans. Republican Sen. Dan Sullivan is on the ballot with Daniel J. Sullivan, a retired teacher Republicans call a sham candidate meant to confuse voters. The New York Times reported that Mary Peltola’s Democratic campaign helped recruit him, but her campaign denies it. President Trump had the Justice Department sue to block certification if the senator lost, saying “I’m the one who said do it.” On Sunday, a federal judge tossed the case, calling the government’s request “infeasible.”

Alaska’s count could still run to November 18, though. Barron’s cites Nate Silver’s forecasting model, which puts Democrats near 78% to win the Senate, with nearly 20% of its simulations landing at 51-49 or 50-50, where one slow count could decide who runs the place.

Whoever wins, Trump says “of course” he’ll accept the results, though he’s also said, “if they’re honest elections.” That’s like a Little League coach promising to respect every call, as long as they’re good calls, and he’ll let you know after the game which ones those were.

The Most Important Election Since 1868

Trump also has a forecast for us. “If the Democrats win, you will have an economic depression, much like 1929,” he said in a video last month. He told Sean Hannity much the same thing in August 2020, warning of “a depression” if Joe Biden won. Biden won, and the S&P ETF (SPY) finished 2024, Biden’s last full year, about 79% above where it stood just before that election.

The end-of-the-world billing goes back a long way, and both parties love it. Trump called 2020 “the most important election in the history of our country.” Biden said something similar in 2004, 2008, 2012, and 2016, and one columnist’s running list goes back to an 1868 Atlantic Monthly editorial. That’s 158 years of the most important election ever, sold to us by people who won’t give you a straight answer about anything.

Ask a senator on a Sunday news show what time it is, and you’ll get three minutes on how hardworking families deserve a better clock. These are the people forecasting the S&P 500 for us. I’d probably vote for the first one who tripped and accidentally told the truth, and I wouldn’t much care which party he fell out of.

The Florida Recount Took the Blame for Cisco

I don’t take market calls from those guys, so I went back through the disputed elections to see whether a fight over the vote actually pushes stocks lower.

Everybody starts with Bush and Gore, because the S&P 500 fell 11.7% from Election Day 2000 to its December 20 low. I traded through that whole mess, and the timing doesn’t match how people remember it. When the Supreme Court ended the recount on December 12, the index was down a bit more than 4%, so most of the damage came after we knew who’d won.

That December 20 low tells you what was really going on. The Nasdaq dropped more than 7% that day after Merrill Lynch downgraded Cisco (CSCO), IBM (IBM), and Hewlett-Packard, a day after the Fed disappointed investors hoping for a rate cut by leaving rates at 6.5%. The Everett Herald‘s market story mentions Bush only to say his pick for Treasury secretary did little to move investors. The Nasdaq was already down more than 42% for the year because the dot-com bubble was bursting.

Two Votes, Eight Months and a Few More

The rest of the record reads the same way.

New Hampshire’s 1974 Senate race came down to two votes, the Senate spent months failing to sort it out, and the state finally voted again in September 1975. The S&P 500 gained 31.5% in 1975, coming off a brutal bear market.

Al Franken, the comedian from Saturday Night Live, and Norm Coleman fought for nearly eight months over a 312-vote margin and what became the Democrats’ 60th Senate vote. The election was November 4, 2008, and Coleman didn’t concede until June 30, 2009. By the time the market bottomed that March, the S&P 500 was down about 33% from Election Day, but the financial crisis was doing that damage. Stocks then rallied about 36% from that low, with the Senate seat still empty, leaving the index about 8.6% below its Election Day level on the day Coleman gave up.

During the 2018 midterms, Trump called Florida’s ballots “massively infected” and demanded the recount stop. The S&P 500 fell 2% that same day, which looks damning until you read why. A parts maker, Lumentum (LITE), said a big customer was slashing orders, and Wells Fargo analysts figured that customer was Apple (AAPL). Apple’s stock dropped 5%, and investors started worrying about growth heading into 2019. SPY still finished the month up 1.9% before sliding about 9% in December, weeks after the recount ended.

Two years later, Trump’s own race was on the line, and he refused to concede. The S&P 500 gained 10.8% that November, though Pfizer’s (PFE) news that its COVID-19 vaccine looked 90% effective deserves much of the credit.

What Actually Scares Stocks

The worst political hit I found didn’t involve a ballot at all.

In 2011, the fight over raising the debt ceiling got so ugly that the ratings agency Standard & Poor’s stripped the U.S. of its AAA credit rating. The S&P 500 fell 6.66% on the next trading day. Europe was in the middle of its own debt crisis at the time, with Italy and Spain in trouble, so it wasn’t all Washington. Still, investors can live with a lawsuit over who won a seat. Somebody messing with whether the government pays its bills is a whole different fight.

I’d get nervous if officials started ignoring court orders, or if a bitter election fight carried over into the next debt ceiling showdown, which Reuters says is unlikely before late 2027.

The best thing that could happen Tuesday is a result nobody can argue with. Man Group, the big hedge fund manager, says options traders are already betting on a clean one, so a weeks-long count could jolt the market, though I’d expect that to be temporary.

Even if it does, Wells Fargo found the S&P 500 has risen in the 12 months after every midterm since World War II.

I don’t think a disputed election, on its own, produces a sustained drop in the stock market. If stocks do slide after Tuesday, I’d look at the AI trade first. The Nasdaq lost 4.5% in a single week in October on AI worries and higher oil, and investors have been moving out of tech over how much debt is paying for all those data centers. I’m still bullish, because a rough few weeks in the Nasdaq doesn’t change where this technology is headed or how much money is chasing it.

If Alaska gets ugly and stocks take a hit, cable news will treat it like the end of the republic, and X will suddenly fill up with lifelong experts on Alaska election law who couldn’t find Juneau on a map last week. Then somebody will get sworn in, investors will go back to worrying about earnings, and in two years we’ll all be told about the next most important election of our lifetime.

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At the time of publication, Byrne had no positions in any securities mentioned.