Our experience working with individuals and families on such an intimate level provides a glimpse into the interwoven fabric that makes up the wonderful country we live in. Economics, politics, science, and cultural exchange are all connected, and we are connected to it. As Americans, we agree we want the best for our country, our generation, and the generations to come. This overarching theme unites us despite differing opinions on how to get there.
As an investor, you are connected to the economy and the decisions our political leaders make. Investment truths become conflated due to media outcries of economic collapse during presidential elections. There will be no shortage of opinion on the future of our country and what will happen to the stock market between now and November.
These opinions often heighten our angst of what might happen to the market we operate in daily. We examined the impact of elections to better prepare for November. Science tells us the following about investing during elections:
- It is difficult, if not impossible, to identify systematic return patterns in election years.
- On average, market returns have been positive in election years and subsequent years.
- Market expectations associated with election outcomes are embedded in security prices.
The last point should not be understated; “election outcomes are embedded in security prices.” This is a fundamental rule of the market. Today's stock prices reflect investor expectations of a company’s future cash flows, and future events that might impact them. For example, Amazon’s share price already takes into consideration how various election outcomes will impact the company.
Data reveals long-term stock market movement is largely unaffected by elections or political party. From Coolidge to Trump, disciplined investors were rewarded despite unforeseen global events and economic cycles. This is the reason our investment philosophy strategically targets variables known to produce higher investment returns over long periods of time. Short-term blips are not to be feared as they provide investment opportunity for those that are well-positioned.
The stock market is a force of nature for allocating capital to companies that strive to improve our lives. Let’s keep that in mind before, during, and after election season!
Past performance is not a guarantee of future results. Indices are not available for direct investment; therefore, their performance does not reflect the expenses associated with the management of an actual portfolio. Source: S&P data © 2020 S&P Dow Jones Indices LLC, a division of S&P Global. All rights reserved