Thoughts on the Intersection of Politics and Investing

Let me begin by stating this is not a political commentary. Everyone is entitled to vote their conscience and I have no desire to weigh in on that decision. Instead, this is a commentary on the impact politics has on investing, in the short-term and the long-term.

In the Short-term, Markets Don’t Like Uncertainty
As the Election Day approaches, the U.S. stock market has seen increased volatility and has declined about 4% from the previous high set in August. There is an old adage on Wall Street about the markets not liking uncertainty and I think we are seeing that play out right in real time.

Uncertainty in this context boils down to WHO will be the next President and WHAT will he or she do. As I said, I will not weigh in on the candidates but I’ll leave it to you to gauge their respective levels of certainty and stability.

It would not be surprising to see the stock market move higher or lower based on the election outcome, but there is no ability to predict those moves or act on them with high degrees of confidence. Despite any short-term swings that may occur, I would expect the market to quickly revert back to the trend driven by the fundamentals of U.S. companies, not U.S. politics.

In the Long-term, Bull & Bears ≠ Donkeys & Elephants
Predictions about presidential elections and the stock market often focus on which party or candidate will be “better for the market.” Not surprisingly, opinions often reflect party preferences, but the reality is no matter who is running the government and what policies they implement, our economy moves forward, companies make money and owners of those companies benefit.

The chart below shows the growth of one dollar invested in the S&P 500 Index over nine decades and 15 presidencies (from Coolidge to Obama). As you can see, there is no obvious pattern of stock market performance based upon which party holds the Oval Office.

Conclusion
America is built on democracy so be proud of our process, no matter how flawed it may seem. Also, recognize that no matter who is in the White House, a successful investing experience is always based on your ability and willingness to ride out short-term volatility in exchange for long-term results.

 

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