The Presidential Election Night Results on the Stock Market and Economy

“Don’t believe the hype.”

I’ve been hearing some concern lately about the Presidential election and what affect election night results might have on the stock market and economy. In this emotionally charged environment I find it helpful to step back and see what D.C. politics has meant for investors historically.

Our system of government was set up to have a number of checks and balances on any one person’s power. While the President can create an agenda and try to push it forward, it could take years before campaign promises make their way into legislation (if ever). We tend to give the President much more credit and blame over the economy than they deserve. The U.S. economy is so big and complex it takes much more than the political climate in D.C. to move the ship.

As you know, our investment process relies on economic and market data. The set of indicators we use have historically done a good job navigating various market environments. Of those indicators, you might be interested to find, politics is not one of them. The reason for this is there is no clear correlation (however you slice it) between politics and market returns and the economy.

The stock market is much more volatile than the underlying economy, moves in real-time and is comprised of emotional human beings. Therefore, it’s very likely the market will try to interpret election results leading up to and just after the election, manifesting in higher volatility. No one can predict what the market is going to do, but if we do happen to get a selloff, history has shown this to be precisely the wrong time to panic and hit the sell button. This is why aligning your portfolio to your own personal risk tolerance beforehand is so important.

As we move toward the end of the year our focus will be on the indicators we believe have a strong chance of helping us point our sails in the right direction. Please let us know if you have any questions or would like to discuss your current portfolio positioning.

Michael Gallagher, CFA® – Portfolio Manager at The Partners Group

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