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Turbulent election cycles are nothing new in the US, and their arrival has continuously brought angst to investors of all sorts. The proverbial saying of “If candidate A wins, we are all doomed” is a colloquial statement that may or may not hold some respective truth. However, in this brief article we will cover what things to consider objectively when “Investing in an Election Year.”
How Have the Markets Responded to the Winner?
The financial markets are a forward-looking instrument. They rapidly calculate and weigh the prospects of future events to determine what the appropriate price of an underlying investment should be today. Because of this reality, a key enemy of the financial markets is uncertainty, and there is no shortage of that in an election year. The inability for the markets to anticipate the legislative landscape typically translates to more volatility leading up to the election. However, history has shown that as the fog clears, and the results are in, that volatility typically subsides, and fundamentals drive the ship once again. Therefore, despite the volatility leading up to November, you want to be careful not to lose sight of your long-term investment objectives in the face of favoring one presidential candidate over the other.
Presidential Efficacy
Although the Presidential candidate that wins office will certainly ascend to one of the most powerful positions on the planet, it is important to keep in mind the checks and balances structure of our political system. Many promises have and will continue to be made along the campaign trail, but without the cooperation of congress, significant legislative changes are difficult. Although the President can impact Trade, Immigration and Energy, predicting other policy changes and the market responses to those changes, can be nearly impossible.
Big Picture
The Presidential race will surely remain one of the leading headlines in the weeks ahead, and it wouldn’t be surprising to see an uptick in volatility as well. However, election results must always be analyzed in conjunction with other historical factors of market returns (i.e. fiscal policy, monetary policy, labor markets, corporate profits, economic growth, etc.). History has shown strong economic performance and market returns are possible in all government configurations (i.e. red wave, blue wave and divided government). As we enter this election season, resist the temptation to let your politics impact your investment decisions, despite the potential of increased volatility and emotions. As the saying goes, political opinions are best expressed at the polls, not in a portfolio. We would love to continue the discussion and provide further information for those interested!
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Additional Disclosure: The content contained herein is for educational and informational purposes only and may be subject to change at any time without notice. This content does not reflect the view and opinions of Impact Retirement. The information is not intended to be, and should not be considered as, impartial investment advice or an offering of investment advisory services.
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