Elections & The Market
What does this Election mean for your Portfolio?
Election season evokes strong emotion in all of us and for good reason. Voting represents a battle between competing ideals. When our candidate wins, it is natural to feel optimistic about the future because the victor shares our convictions. However, if our candidate doesn’t win, it leaves us feeling disappointed and concerned about the country’s direction. Let’s step away from our feelings for a moment. Do the policies of one man influence the economy and market returns for years to come?
As it turns out numerous studies have been conducted on the subject. Below are the some of the key takeaways:
1. The business cycle has much greater influence over markets than government does. Example: Tech bubble
2. Congress actually passes legislation, so Congress has more long-term influence than the President.
3. More companies make money in spite of government, not because of government.
4. Markets dislike uncertainty so they can react short-term over announcements, but can quickly/slowly stabilize as they learn the long-term effect of new news. Example: When Trump first started to win, markets predictions were sharply lower. The next day (as of 2PM) the market was positive.
There is no denying elections stir the emotions within us. The challenge is in maintaining your composure in the aftermath. It is a well-documented fact that financial decision-making when under emotional stress leads to over-reactions that cost money.
Will Trump be good for your portfolio? Evidence suggests his decisions will not be the most important determinant of your investment success. Have questions? Give us a call!
These views are not necessarily the view of The SFA, and should not be construed directly or indirectly, as an offer to buy or sell any particular security. The accuracy or completeness of this information cannot be guaranteed. Past performance does not guarantee future financial results.