{"id":473,"date":"2020-10-19T00:00:00","date_gmt":"2020-10-19T00:00:00","guid":{"rendered":"https:\/\/www.garrettandrobinson.com\/preparing-for-the-election-and-its-aftermath\/"},"modified":"2023-10-27T11:57:08","modified_gmt":"2023-10-27T15:57:08","slug":"preparing-for-the-election-and-its-aftermath","status":"publish","type":"post","link":"https:\/\/www.garrettandrobinson.com\/preparing-for-the-election-and-its-aftermath\/","title":{"rendered":"Preparing for the Election and it’s Aftermath"},"content":{"rendered":"\n

Pandemics\nand protests.  Wildfires, market crashes,\nand a recession.  If someone ever tries\nto tell the story of 2020 on film, it will take more movies than Star\nWars.  <\/em>At one point, we even had to\nworry about murder hornets.  Murder\nhornets!  <\/p>\n\n\n\n

There\u2019s\nno question this year has been a crazy one. \nBut it\u2019s about to get even crazier \u2013 because a new presidential election\nis only a month away.  <\/p>\n\n\n\n

Over\nthe last few weeks, several clients have asked me what the election could mean\nfor the markets.  At a time when there is\nso much uncertainty to deal with, the thought of adding an election to the mix can\nseem overwhelming.  So, I thought I\u2019d\nwrite about how we should prepare for both the run-up and aftermath of the\nelection.  What exactly does the upcoming\nelection mean for the markets?<\/p>\n\n\n\n

Short-Term View: Prepare for Volatility<\/strong><\/p>\n\n\n\n

Uncertainty.  That\u2019s the keyword.  Investors hate it, the year has been full of it, and the lead-up to a presidential election just brings more of it.  As a result, the markets often see increased turbulence in the month before an election.  For example, in October of the last four presidential election years, the markets fell.  <\/p>\n\n\n\n

I\ndon\u2019t ever try to predict the future, but we should be especially prepared for\nvolatility this year. That\u2019s because there are still so many question marks\nsurrounding our economy and the pandemic. For example, the pandemic is showing\nno signs of stopping, and indeed cases may climb again as winter sets in. The\neconomy has improved, but is still on thin ice, with unemployment rates still\nstubbornly high. Investors are watching Congress with bated breath, waiting to\nsee whether they’ll enact a new stimulus package. If not, <\/em>that could\nspell trouble, as many economists believe more stimulus is needed for the\neconomy to recover. <\/p>\n\n\n\n

But\nthere\u2019s another reason why we should prepare for volatility: The possibility of\ndelayed \u2013 or worse, disputed <\/em>\u2013 election results.  <\/p>\n\n\n\n

Thanks to the pandemic, more people are likely to vote by mail than ever before.  Mail ballots take longer to count than traditional ones, and some states \u201cwill count ballots that are delivered after the election if they are postmarked by a deadline.\u201d  Because election officials are more concerned with counting votes correctly <\/em>than quickly, <\/em>we may not have a winner declared for several days or even weeks.  In fact, earlier this year, during primary season, several states needed more than a week before they could declare a winner.  <\/p>\n\n\n\n

Remember,\nuncertainty<\/em> is the key word.  Any\ndelay may well cause more of it, which could trigger volatility.  Then, too, some politicians have cast doubt\nover the very idea of mail ballots.  If\nthe losing candidate feels there is ground to contest the results that could\ndelay the process even further, leading to \u2013 you guessed it \u2013 more volatility.  <\/p>\n\n\n\n

We don\u2019t have to look far back in history to see what the markets did the last time results were delayed.  Remember the drama surrounding the 2000 election?  On election night, Florida\u2019s results were considered too close to call.  Over the next month, Americans learned more than they ever wanted about things like dimpled chads and butterfly ballots.  The S&P 500, meanwhile, dropped over 8% between election day and December 15 when the result was finally decided.<\/p>\n\n\n\n

Now,\nnone of this is to say that pre- and post-election volatility is guaranteed.  It\u2019s not. \nWe should, however, prepare ourselves for it.  Because the more mentally prepared we are to\nweather short-term uncertainty, the better equipped we are to remember\u2026     <\/p>\n\n\n\n

The Long-Term View: Patience Over Politics<\/strong><\/p>\n\n\n\n

Every\nfour years, I hear people say, \u201cIf the Democrats\/Republicans win, I\u2019m going to\nsell (or buy) because that means the markets will fall (or rise).\u201d  It\u2019s understandable why people think this\nway.  After all, politics play an\nincreasingly large role in our daily lives. \nWhy wouldn\u2019t they impact our portfolio, too?  But the truth is, presidential elections are\nrelatively unimportant when it comes to the markets, at least in the\nlong-term.  A quick look at history bears\nthis out.  <\/p>\n\n\n\n

Historically, the S&P 500 has gone up 10.8% under Democratic presidents and 5.6% under Republican presidents. That\u2019s not a large difference and can be attributed to a whole range of factors besides politics.  Either way, the markets tend to go up over time.  <\/p>\n\n\n\n

One\nthing I\u2019ve noted in recent years is that as elections get more partisan, so too\ndoes the rhetoric about how the candidates will impact the markets.  For example, here\u2019s the opening sentence from\na CNBC article published on November 3, 2016, shortly before the election:<\/p>\n\n\n\n

Wall Street\u2019s\nlong-running view that Hillary Clinton would easily become the next president\nhas been replaced by a new fear that Donald Trump could win, and it probably\nwon\u2019t be a pretty picture for stocks<\/strong> if he does.<\/em>5<\/sup>  <\/em><\/p>\n\n\n\n

Here\u2019s a snippet from an\narticle in the New York Post written a few months before Barack Obama was first\nelected:<\/p>\n\n\n\n

\u2026it\u2019s hard to see\nhow a President Obama would be good for Wall Street.  He wants to raise the capital-gains\ntax\u2026[which] would be great for the tax-shelter business, but stocks would\ntank<\/strong>\u2026in other words, the markets could fall further<\/strong> from their\nalready-beaten down levels once the street begins to focus on an Obama\npresidency.<\/em>6<\/sup><\/p>\n\n\n\n

Both these predictions\nended up being wide of the mark.  In the\nfirst year of President Obama\u2019s presidency, the markets rose 23.45%.6<\/sup>  In President Trump\u2019s first year, the markets\ngained 19.42%.7<\/sup>  Doom and\ngloom is predicted more and more with each election and yet the markets keep\ngoing up over time.  <\/p>\n\n\n\n

This is exactly why we are\nlong-term investors.  As the saying goes,\nit\u2019s not about timing the market.  It\u2019s\nabout time in <\/em>the market.  This is\nwhy making investment decisions based on politics just doesn\u2019t make sense.  As you already know, emotional\ndecision-making has no place when it comes to investing.  But few things prompt as much emotion as\npolitics.  That\u2019s why it\u2019s crucial <\/em>that\nwe keep politics out of your portfolio.  <\/p>\n\n\n\n

It’s true that Trump and\nBiden have different economic policies, and some of their policies will <\/em>affect\nthe markets to a degree.  But the markets\nare like the world\u2019s most complicated cake recipe, and the president is just\none relatively minor ingredient.  Far\nmore important are supply and demand, innovation and invention, mergers and\nacquisitions, the ebb and tide of trade, and a host of other economic\ndevelopments both large and small. \nMaking major investment decisions based on politics would be like\ncarefully measuring how much chocolate goes into your cake while ignoring the\namount of sugar, flour, and eggs.<\/p>\n\n\n\n

So, what does the election\nmean for the markets?  In the short-term,\npotentially a lot.  In the long term,\nprobably not much.         <\/p>\n\n\n\n

2020 has been a long,\ncrazy year.  It\u2019s possible the next few\nmonths could be even crazier.  But in the\ngrand scheme of things, they are still just a few months, and this is still\njust one year.  We\u2019ll be investing long\nafter Trump and Biden are both names in the history books.  \n\nIn\nthe meantime, always remember that my team and I are here for you.  We\u2019re happy to review your portfolio, answer\nyour questions, and address your concerns. \nThank you for the trust you\u2019ve placed in us, and please let us know if\nwe can ever be of service.  Be well, stay\nsafe, and enjoy the rest of your year!    \n\n\n\n\n<\/p>\n","protected":false},"excerpt":{"rendered":"

Pandemics and protests.  Wildfires, market crashes, and a recession.  If someone ever tries to tell the story of 2020 on film, it will take more movies than Star Wars.  At one point, we even had to worry about murder hornets.  Murder hornets!  There\u2019s no question this year has been a crazy one.  But it\u2019s about […]<\/p>\n","protected":false},"author":5,"featured_media":474,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"post_statement":"","post_description":"","post_cta":"","post_button":"Read More","post_button_url":"","compliance_id":"","post_disclaimer":"","footnotes":"","_links_to":"","_links_to_target":""},"categories":[1],"tags":[],"_links":{"self":[{"href":"https:\/\/www.garrettandrobinson.com\/wp-json\/wp\/v2\/posts\/473"}],"collection":[{"href":"https:\/\/www.garrettandrobinson.com\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.garrettandrobinson.com\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.garrettandrobinson.com\/wp-json\/wp\/v2\/users\/5"}],"replies":[{"embeddable":true,"href":"https:\/\/www.garrettandrobinson.com\/wp-json\/wp\/v2\/comments?post=473"}],"version-history":[{"count":1,"href":"https:\/\/www.garrettandrobinson.com\/wp-json\/wp\/v2\/posts\/473\/revisions"}],"predecessor-version":[{"id":1959,"href":"https:\/\/www.garrettandrobinson.com\/wp-json\/wp\/v2\/posts\/473\/revisions\/1959"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.garrettandrobinson.com\/wp-json\/wp\/v2\/media\/474"}],"wp:attachment":[{"href":"https:\/\/www.garrettandrobinson.com\/wp-json\/wp\/v2\/media?parent=473"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.garrettandrobinson.com\/wp-json\/wp\/v2\/categories?post=473"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.garrettandrobinson.com\/wp-json\/wp\/v2\/tags?post=473"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}