In less than eight months, the American people will decide who will lead the nation for the next four years. As President Joe Biden gears up for a potential second term, the question arises: What impact will this have on the stock market? Looking at historical data and considering current economic indicators, there are mixed opinions on how Wall Street may fare if Biden is reelected.

Since President Biden assumed office on January 20, 2021, the Dow Jones Industrial Average, the S&P 500, and the Nasdaq Composite have all experienced noteworthy gains, reaching new all-time highs. The Dow Jones has risen by 28%, the S&P 500 by 36%, and the Nasdaq Composite by 22% during his tenure so far.

However, concerns loom over certain policy proposals that could potentially affect corporate earnings and the overall health of the U.S. economy. Biden's suggestion to increase the tax on stock buybacks from 1% to 4% could make share repurchase programs less appealing, thus potentially slowing down earnings per share growth. Additionally, his plans to raise the corporate alternative minimum tax rate to 21% from the current rate of 15% and the peak U.S. corporate income tax rate to 28% from 21% may lead to reduced spending on innovation, hiring, and acquisitions by businesses.

Macro-economic factors also suggest potential downside for the stock market in Biden's second term. A decline in the U.S. M2 money supply, which accounts for cash and coins in circulation, demand deposits, savings accounts, money market accounts, and certificates of deposit below $100,000, has emerged as a cause for concern. Previous declines in the M2 money supply occurred during deflationary depressions associated with high unemployment rates.

Additionally, indicators such as the Conference Board's Leading Economic Index and the Federal Reserve Bank of New York's recession probability measure are pointing towards potential economic weaknesses ahead.

Nonetheless, when considering the history of stock market performance under different U.S. presidents, it becomes evident that long-term investors can find solace in time and perspective. An analysis by CFRA Research prior to Biden's presidency noted that, historically, Democrat presidents have overseen an 11.2% annualized return in the S&P 500, outperforming their Republican counterparts. This includes the notable gains during the terms of Bill Clinton and Barack Obama.

Moreover, a broader examination of market data indicates that the stock market has generally seen positive returns regardless of which party controls the White House. Studies by Bespoke Investment Group and Crestmont Research highlight the resilience of the stock market over long periods. Despite periodic fluctuations and bear markets, the S&P 500 has consistently produced positive total returns over rolling 20-year periods since 1900.

While analysts and investors acknowledge the potential short-term impacts of political decisions and economic indicators, the historical data encourages patient investors to remain optimistic about the stock market's long-term perspective.

It is important to note that this analysis is based on historical trends and does not guarantee future performance. Wall Street will continue to face headwinds and uncertainties as policies develop and economic factors evolve.