Elections have a way of revealing the true state of American politics. I think many have known it was in a sad, poor state but we didn’t have a concrete point in time to say, yep this is really bad. Until now. Currently, we find ourselves asking, “are these the best candidates we can offer?”
It is the first election when more than 50% of voters are voting “against the other candidate” rather than for the one they will actually “pull the lever” (Pew Research).
How Elections Impact the Stock Market
In looking at history here is what we know.
Volatility in the stock market always increases heading into and exiting a presidential election. We know that the stock market hates uncertainty, and uncertainty is exactly what you get in a polarizing election that has very different candidate policies. Volatility is normal in the stock market but is heightened when emotions, worry and policy concerns influence trading. While it is normal to be concerned, it is not wise to make drastic changes to your financial plan.
12 months after an Election the markets are usually not impacted. There is an old saying that “the market always climbs a wall of worry”. Although there are no guarantees longer term, it is impressive looking at this chart of the many various worries and concerns that the market has climbed.
The market likes political “grid-lock”, and it is likely to be so after this election.
“Grid-lock” between the Executive and Legislative offices- Congress/House provides some certainty on likely policies and helps prevent dramatic policy swings. Large policy shifts or swings would occur without grid-lock, actually causing more uncertainty in that current political cycle and then also in the following election cycle as the Pendulum historically looks to sweep to the opposite side of the spectrum.
Business and citizen spending has the greatest impact on the economy.
In the United States, 82.4% of GDP comes from sources other than the government. The president doesn’t have to be popular or have a high approval rating for a healthy stock market. Historically, the market has performed well when approval is in the 35-50% range.
Making a move to Cash is “Timing the Market”. Study after study has shown that trying to time the market is a futile exercise and missing just a few of the best days in the market can dramatically impact your long term returns. Refer to the chart above where the market climbs a wall of worry and this one below.
A long term financial plan is your best bet.
Whether it is worry over an election causing increased market swings or clear goals you want to accomplish financially… either way it is best to stick to your financial plan. Focus on the things you can control inside of your plan such as your goals you have set for yourself, your personal spending, how much you regularly save and the risk you are comfortable with in your portfolio.
To the Freedom to Vote For…or Against,
Luke Fields, CFP®
Any opinions are those of Luke Fields and not necessarily those of RJFS or Raymond James. Expressions of opinion are as of this date and are subject to change without notice. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Past performance may not be indicative of future results. Every investor’s situation is unique and you should consider your investment goals, risk tolerance and time horizon before making any investment. Investing involves risk and you may incur a profit or loss regardless of strategy selected. There is no guarantee that any statements, opinions or forecasts provided herein will prove to be correct.