Will the Election Move the Markets?
Based on historical precedent, the financial markets will shrug off the election results.
Based purely on the barrage of political advertising and news coverage surrounding next month’s presidential election, it would be easy for investors and financial advisors to overestimate its potential impact on the financial markets.
But the results of a presidential election typically produce a watered-down version of whatever was promised or threatened, and the financial markets move on.
The best recent example of this was the election of Donald Trump in November 2016, which followed a knee-jerk reaction by some investors to head to cash to avoid over-hyped fears of financial apocalypse. The reality was a nearly 22% gain for the S&P 500 Index in 2017.
While there are always reasons to pay attention to specific sectors and categories depending on the leanings of a particular administration and how much support a president has from Congress, the macro picture usually favors the upward bias of the equity markets.
In our latest installment of Advisor Views, Adam Reinert, chief investment officer at Marshall Financial, puts this into perspective, saying, “Elections only matter to your portfolio to the extent that you let them.”
“Historically, the market has shown remarkable resilience through numerous dramatic political events over the past 50 to 70 years, such as the JFK assassination in 1963, Nixon’s resignation in 1974, and the Bush-Gore election results in 2000,” he said. “While these were significant historical moments, they did not trigger major market moves.”
Different Outcomes Favor Different Sectors
Beyond the big scary macro perspective, there are still plenty of details to consider based on the election outcome.
Noah Damsky, principal at Marina Wealth Advisors, believes a Trump victory would be generally bullish for the energy, financials and real estate sectors, while a Kamala Harris win would benefit the information technology and consumer discretionary sectors.
“I expect Trump will talk about he benefits of lowering rates and put substantial pressure on the Fed to consider lower interest rates to minimize the chances of a recession,” Damsky said.
Meanwhile, he added, “Harris will be more passive on foreign policy as it relates to potentially contentious relations with China.”
“A more passive approach with China means companies that have major supply chains and major demand out of China can rest easier,” Damsky said. “This should make life easier for information technology and consumer discretionary companies.”
