Trump Warns of Another 1929-Style Depression. History Tells a Different Story for Stocks
President Donald Trump has warned that a Democratic victory in the midterm elections could trigger an economic depression similar to 1929. However, a historical review of disputed U.S. elections suggests that election uncertainty alone has rarely caused sustained stock market declines.
The article points to Trump's similar warning in August 2020, when he predicted a depression if Joe Biden won. Biden went on to win, and the S&P 500 ETF ($SPY) finished 2024 approximately 79% above its level just before the election.
Historical examples also show that major market declines often had other causes:
- **2000 Bush-Gore recount:** The S&P 500 fell 11.7% from Election Day to its December low. Much of the decline came after the recount ended, as the dot-com bubble continued to collapse. The Nasdaq was already down more than 42% for the year.
- **1974 New Hampshire Senate race:** A disputed result delayed the final outcome until September 1975. Despite the uncertainty, the S&P 500 gained 31.5% in 1975.
- **2008 Minnesota Senate race:** Al Franken and Norm Coleman spent nearly eight months contesting the result. The S&P 500 fell sharply during the period, but the financial crisis was the primary driver. Stocks subsequently rallied about 36% from their March 2009 low.
- **2018 Florida recount:** The S&P 500 fell 2% on the day Trump criticized the ballots, but concerns about Apple's orders and weakening technology demand were major factors. The index initially finished November higher before declining in December.
- **2020 presidential election:** The S&P 500 gained 10.8% in November despite Trump's refusal to concede. Pfizer's announcement about its COVID-19 vaccine also helped support the market.
The article identifies the 2011 U.S. debt-ceiling crisis as a more serious political risk. After Standard & Poor's downgraded the U.S. credit rating from AAA, the S&P 500 fell 6.66% in the following trading session. The episode highlighted how threats to the government's ability to meet its financial obligations can have more direct market consequences than disputes over election results.
For the current market, the author sees AI-related concerns as a more immediate risk. The Nasdaq fell 4.5% in one week in October amid worries about AI valuations, higher oil prices, and the debt financing behind massive data-center investments.
The broader takeaway is that a contested election may trigger short-term volatility, particularly if vote counting drags on. But the article argues that earnings, interest rates, corporate spending, and economic conditions are more important factors in determining the market's longer-term direction.
