In the ever-changing landscape of fiscal policy, political decisions on Capitol Hill can have a significant impact on Wall Street. As the upcoming U.S. presidential election draws closer, investors are curious about the potential market outcomes if former President Donald Trump wins and Congress remains divided. While there are no definitive data points to predict future stock market behavior based on these outcomes, historical analysis suggests that patient investors have been handsomely rewarded regardless of the political landscape.

During Trump's first term in office from January 20, 2017, to January 19, 2021, the Dow Jones Industrial Average, S&P 500, and Nasdaq Composite delivered impressive gains of 56%, 67%, and a remarkable 138%, respectively. However, it is worth noting that stock market returns under Trump varied significantly between his initial two years with a unified Republican Congress and his final two years in office with a divided Congress.

Considering the potential scenario of a Trump victory in November and a split Congress, investors may wonder whether the stock market is poised for disaster. While challenges could arise, both on the policy front and from macroeconomic headwinds, history reminds us that the stock market has consistently offered positive average annual returns under every scenario.

One of the crucial policy issues that could create contention between Trump and the Democrat-controlled portion of Congress is taxation, both on the personal and corporate front. Trump's significant legislation during his presidency, the Tax Cuts and Jobs Act (TCJA), reduced personal income tax rates and established a flat corporate tax rate of 21%. While Trump would likely aim to continue these rates, Democrats may oppose such a move due to concerns over rising national debt and ongoing fiscal deficits.

Moreover, regardless of who assumes office, macro headwinds pose a potentially even greater threat to the stock market. Notably, the decline in M2 money supply over the past two years is a cause for concern. Historically, significant declines in M2 money supply have been associated with economic depressions and high unemployment rates. While the Federal Reserve and the federal government possess tools to prevent a severe economic downturn, declining M2 money supply has historically signaled an impending downturn in the U.S. economy and stock market.

Despite these potential challenges, historical data indicates that stock market returns have been positive regardless of whether Republicans hold the presidency and Congress is divided. Forbes columnist Mike Patton's calculations demonstrate that the stock market has delivered an average annual return of 12.9% during periods of a split Congress. Additionally, Retirement Researcher found that the S&P 500 averaged a 7.33% annual return during years with a Republican president and a divided Congress.

Furthermore, a growing economy tends to have a positive impact on corporate America, irrespective of political circumstances. Since World War II, the U.S. has experienced several recessions, most of which were resolved within a year or less. In contrast, periods of economic expansion have often lasted for multiple years, benefiting the Dow Jones, S&P 500, and Nasdaq Composite.

While uncertainties exist, long-term investors can find solace in the fact that historical trends have shown positive stock market returns regardless of the political climate. Ultimately, the combination of economic growth and the resilience of the stock market offers optimism for investors, regardless of the outcome of this election season.

Disclaimer: The author of this article has no position in any of the stocks mentioned, and this article is for informational purposes only.