How Do Elections Affect Markets?

One of the questions on every investors' mind these days is the upcoming November elections and how they might move markets. We published a special video update on this topic last week for our clients, and in this blog post we will highlight the key points from that video.

  • The President does not control the investment markets. There is a weak statistical relationship between who wins the Presidency and the investment market returns that follow during their term(s).
  • Congressional election results are what matter more. And regardless of how they end up, the results do not have a good historical ability to predict market returns.
  • New policies take time to implement. Even if a President can get a new economic package passed quickly, it still takes a long time for that to filter into the economy and markets - usually at least 18 months.
  • Initial market reactions eventually fade. There will almost certainly be short term volatility regardless of the outcomes, but markets will eventually refocus on economic and corporate statistics.
  • The current economic and corporate backdrop is solid. When markets dial back in to current conditions, those conditions appear to be favorable with room to get better, at least for the intermediate term.
  • Ignore the dramatic headlines and tune out the noise. No one knows how the elections will turn out and absolutely no one knows how the results will affect markets. Remember that most media outlets are shooting for high ratings, and those come with dramatic news.

Remember, the importance of any event is inversely correlated with the amount of cries you hear about it. In other words, when everyone is asking the same question, it is probably the wrong question. And right now the question is: how will the Presidential election affect the global investment markets? 

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