Upcoming ElectionSubmitted by Maze Financial Planning, LLC on July 26th, 2016
Whatever your political views may be, it’s fair to say that speculation about the upcoming presidential election has been 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 presumptive 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 eighth year of a presidential term or even in election years when no incumbent is running — none of these matter to your investment plan, which is based on your individual circumstances and customized to meet your financial goals.
That doesn’t mean, however, that there aren’t plenty of market “gurus” and other pundits, political and otherwise, making predictions about the effect that the November elections will have on the markets or 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
Over the next few months, there will be plenty of headlines that are likely to move 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 headlines of the day are unlikely to have any long-term impact. We have experienced both good markets and bad under both Democratic and Republican administrations. It is interesting to note that research6 has shown that optimism toward both the markets and the economy is influenced by people’s political affiliation. Put simply, when the political party you favor is in power, you feel more confident in the economy and the markets (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 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 plan and I’m going to stick to it.” Enjoy your summer.
Sincerely, Maze Financial Planning
- MarketWatch.com 3 Washington Examiner 5 Investor’s Business Daily
- CNN.com 4 Newsmax.com 6 Social Science Research Network