In an upcoming election that will shape the future of the United States, investors are contemplating the potential impact of a Joe Biden victory in November with Democrats controlling both houses of Congress. While changes in fiscal policy have the potential to create volatility in the stock market, it's essential for investors to maintain patience and perspective regardless of the political party in power.

According to data available as of April 24, Joe Biden, the Democratic presidential candidate, has garnered enough delegates to secure the presumptive nomination for president from the Democratic Party. Since taking office on January 20, 2021, Biden has overseen significant gains in the Dow Jones Industrial Average (23%), the S&P 500 (32%), and the Nasdaq Composite (17%).

One concern for investors is the potential impact of policy proposals put forth by Biden and his Democratic colleagues. Two proposals, in particular, have caught the attention of Wall Street. Biden plans to quadruple the share buyback tax to 4%, making share repurchases less attractive and affecting earnings multiples at a time when stocks are already highly valued. Another proposal is to increase the peak marginal corporate tax rate to 28% from 21%, along with the corporate alternative minimum tax rate from 15% to 21%. These tax hikes could discourage stock buybacks and reduce disposable income for businesses.

However, it is important to note that Democratic policy proposals are not the sole concern for the stock market. Two economic headwinds present challenges irrespective of who wins the election. Firstly, stocks are historically pricey, with the S&P 500's Shiller price-to-earnings ratio well above its historic average. This potentially indicates that a significant market pullback is in the offing. Secondly, the U.S. M2 money supply has declined for the first time since the Great Depression. Although the decline may simply be a reversion to the mean, a decrease in available capital for transactions has historically been associated with U.S. recessions.

Despite these concerns, history suggests that the stock market tends to deliver favorable returns in the long run, regardless of the political party in power. Analysis conducted by CFRA Research reveals that under a unified Democratic government, the benchmark S&P 500 has averaged a 10.5% annual return. Retirement Researcher further supports this notion, showing that the average annual return of the S&P 500 over nearly a century of Democratic unified government is 14.01%.

It is crucial to recognize that the stock market benefits from extended periods of economic growth, which often accompany lengthy bull markets. While recessions are inevitable, the U.S. economy has consistently recovered from downturns, with a majority resolved within a year.

The key takeaway for investors is the importance of patience and a long-term mindset. Regardless of the outcome of the election, the stock market has historically rewarded investors who hold their positions for an extended period. Therefore, investors should approach the potential challenges posed by a Joe Biden presidency and Democratic control of Congress with a measured perspective.

Disclaimer: The author does not hold positions in any of the stocks mentioned.