How will the presidential race affect the financial markets?

Whatever your political views may be, it’s fair to say that speculation about the upcoming presidential election has been running rampant in the press and among pundits from both sides of the aisle. So it’s really no surprise that the financial media are debating how the nominees, the race itself and its outcome will affect the markets. While there is some evidence that markets tend to be weaker during election years1 (perhaps because of the uncertainty that precedes the election), markets have also tended to bounce back following the election, regardless of the winning party. How the S&P 500 performs in election years versus non-election years, or in the final year of a presidential term, or even in election years when no incumbent is running — none of these should matter to your investment plan, which is based on your individual circumstances and customized to meet your financial goals.

This is not to say that there aren’t plenty of market “gurus” and other pundits out there, political and otherwise, making predictions about the effect that the November elections will have on the markets or the economy as a whole. Mark Cuban told CNN “with 100 percent certainty” there would be a “huge, huge correction” if Donald Trump is elected.2 Bill Maher predicted a Trump victory would “crash the stock market.”3 One writer charges that Hillary Clinton will be “bad for stocks and the economy.”4 Another headline promises that one of Clinton’s plans would “ruin the U.S. economy.”5

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Over the next few months, we can expect plenty of headlines that are likely to affect the financial markets, but no one can accurately predict what those will be. What we do predict, however, is that markets will move up and down over longer periods of time, and the “headline du jour” is unlikely to have any long-term impact. We have experienced both up markets and down under both Democrat and Republican administrations. It is interesting to note that research6 has shown that people tend to feel more confident in the economy and the markets when the political party they favor is in power (and vice versa). Elections are important — but not as part of your investment strategy.

As November gets ever closer, just remember that when it comes to short-term market performance, no one (repeat: “no one”) knows what will happen. What’s more, you’re better off if you don’t let your politics interfere with your investing behavior. The headline to remember is: “I have a carefully crafted plan, tailor made to fit my unique circumstances, and I’m going to stick to it.” There is an overwhelming amount of objectively vetted academic evidence that substantiates this to be by far the superior, long-term approach.

So let us help you make sense of the media noise, sort through the clutter and weather the market’s uncertainties with peace of mind. That’s our recommendation for long-term investing success. Please contact us if you have any questions or concerns or to set up a consultation.

1 MarketWatch.com
2 CNN.com
3 Washington Examiner
4 Newsmax.com
5 Investor’s Business Daily
6 Social Science Research Network