If you are in a conversation these days and you happen to say, “There’s less than two weeks to go,” no one is going to respond, “Until what?” Everyone knows what’s on the horizon; it’s been impossible to avoid between the news coverage, advertisements, yard signs, social media posts, etc. Yes, I’m talking about the election. And while I’ve heard (from both sides) that it is the most consequential election of our lifetimes, I’m not so sure that’s the case. Well, at least not for the stock market, that is. So, regardless of who you’re voting for on November 5th or what you think the outcome might be, let’s remember why you shouldn’t change your financial plan.
#1 | Markets Go Up Over Time, Regardless of Party Control
Look at the chart below and try to find a reason not to invest when either party has control of the White House. Does the market always go up? Absolutely not. Were there drawdowns during both Republican and Democratic administrations? For sure. However, one thing that should stand out is the overwhelming upward trend over the long term, regardless of party control.
#2 | Returns are Similar by Partisan Combination
Remember, markets are not partisan. It’s essential to base your investment decisions on something other than the outcomes of elections. Look at the table below. It shows a remarkable similarity between average returns across the six different partisan combinations.
#3 | Sector Performance is Unpredictable
Let’s say you knew who would win the election ahead of time. Also, you know the candidate’s proposed policies based on their campaign promises. Given this, you should have a good idea of what sectors of the economy will benefit from the election outcome, right? Not so fast. Look at the chart below, which shows the unpredictability of sector-level performance (under/overperforming vs. S&P 500).
#4 | What Does Statistics Say?
Please stick with me here; I will make this as straightforward as possible. The investment strategists at U.S. Bank recently completed a statistical analysis of the impact of presidential elections on the stock market. They measured 3-month returns following election outcomes and compared those to average 3-month returns during a control period. And what they found was quite interesting. Looking at various combinations of election outcomes by partisan control, they found varying levels of statistical significance (when you can confidently say an outcome is based on a real relationship and not a fluke). See below for the three divided outcome scenarios that had significance.
That said, they were not statistically significant when aggregating all the divided outcome scenarios. Therefore, the study went on to look at the economic factors at play in these periods and whether they had a stronger relationship with market performance. And what they found was not surprising. Each economic regime was statistically significant in measuring a variance to the control period. The takeaway? The data suggests that economic and inflation trends, not election outcomes, have a stronger and more consistent relationship with market returns.
So, while the upcoming election is undeniably significant, especially given the intense focus it has received, it’s important to remember that history doesn’t support making drastic changes to your financial plan based on electoral outcomes. The stock market has demonstrated a remarkable ability to grow over time, regardless of which party holds power. Moreover, returns have been similar across various partisan combinations, and trying to time the market is notoriously unreliable. So, rather than letting the election frenzy sway your investment strategy, stay focused on your long-term financial goals and trust the U.S. economy’s resilience, creativity, and entrepreneurial spirit over time.
Economy
- Strong earnings from Tesla (TSLA) buoyed tech stocks late in the week while most indices were lower. The S&P was down -1.0%, the Nasdaq was up 0.2%, and the small-cap Russell 2000 was down -3.0%.
- The University of Michigan consumer sentiment for the U.S. was revised to 70.5 in October from a preliminary of 68.9, marking a third consecutive month of rises and reaching the highest level in six months.
Stocks
- U.S. equities were in negative territory. Materials and Healthcare led the decline, while Consumer Discretionary and Technology outperformed. Growth stocks led value stocks, and large caps beat small caps.
- International equities closed lower for the week. Emerging markets fared better than developed markets.
Bonds
- The 10-year Treasury bond yield increased 16 basis points to 4.23% during the week.
- Global bond markets were in negative territory this week.
- High-yield bonds led for the week, followed by government bonds and corporate bonds.
