"If the government is to tell big business men how to run their business, then don't you see that big business men have to get closer to the government even than they are now? Don't you see that they must capture the government, in order not to be restrained too much by it? Must capture the government? They have already captured it."
Woodrow Wilson, 1913
A common meme is that with the increase in government there will be so much regulation coming out of this administration that it will be a mistake to own stocks. As much as Republicans would like to pretend otherwise, increasing regulation is not always bad for the stock market. The stock market consists of the existing capital stock and new regulations often affect the incentives for capital formation more than the existing capital stock. Increasing regulation means an increasing risk of regulatory capture, where the agencies designed to regulate a sector end up protecting the existing businesses more than the consumers the regulations are designed to protect.
2. Higher Cost of Entry: Having to deal with red tape can discourage new entries into the industry. Less competition means higher prices for the existing companies.
3. Economies of scale and red tape: The larger the company, the more capable they will be at minimizing the cost of the red tape. The intrapreneurs who are creating new businesses inside of an existing corporation will have a large leg up compared to the smaller companies and entrepreneurs who aren't equipped to deal with bureaucracies. Political rhetoric favors small businesses, political actions often do the opposite.
4. Government contracts are much more likely to be awarded to the existing players. Even outside of the personal connections, some bidding contests are outright biased against newcomers by giving points to businesses that have done similar projects in the past. So unless the government seems determined to destroy an industry, the analyst needs to weigh the effect of increased regulation's on short term earnings versus the decline in the long term earnings volatility. With lower volatility comes higher returns, especially if leverage is increased*. If increased regulation, lower volatility and higher leverage sounds like an unlikely combination, think back to Fannie Mae, Freddie Mac and the recent housing bubble. It could be said that these reasons explain why the stock market outperforms during Democratic presidencies, but that's not actually true. *Of course, with the banking sector in its current state, an environment of increased leverage is likely a long ways away.