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StonebridgeFOCUS | Markets Don't Care About Your Politics

2020 has been a year to forget, and tomorrow is certainly going to another one of those days. I’m sure you are just as disappointed as I am that Tuesday’s episode of The Bachelorette will be bumped to Thursday for election coverage. We’ll have to wait a couple extra days to find out the tumultuous end of Clare Crawley’s season. It’s also likely that we’ll have to wait a few extra days to find out the results of the 2020 Presidential election.

Recent polls show Democratic nominee Joe Biden leading President Trump both nationally and in key battleground states. With high numbers of mail-in ballots to process, there are signs that counting may not be complete until later this week. This week is certainly set up to be politically contentious with a high probability of volatility in financial markets. With the election in mind, here are four things we know and four things that we don’t.

Things We Know

  1. Market cycles matter, not election cycles. If you want to forecast the direction of financial markets, it is far more important to look at valuations and interest rates. No matter who wins this election, they will be dealing with a challenging market environment with interest rates at historic lows and second-highest starting valuations.
  2. The economy is bigger than a single person. The U.S. economy is $20.5 trillion and U.S. stock market is $30 trillion, which are simply too big to be meaningfully impacted by one person. One could argue that the Federal Reserve Chairman has greater impact, not the President.
  3. Markets don’t care who resides in the White House. Every President since the Great Depression has experienced up and down markets.
  4. Stocks don’t care about political parties. Only two U.S. Presidents experienced negative stock market returns over the last 40 years. One was a Republican (George W. Bush) and one was a Democrat (Jimmy Carter). All others experienced positive returns over their term(s).

Things We Don’t Know

  1. Who wins the election? If 2016 taught us anything, it is that polling is not an exact science.
  2. What policies will eventually be pursued? There is a big difference between a stump speech and what policies ultimately get pursued. Many policies over the next 12-18 months will likely focus on COVID and the economic recovery, regardless of who is in office.
  3. How those policies will be amended through Congress? Candidates present their ideal policies, but rarely are those policies enacted as originally envisioned. There’s no way to know how a bill will be adjusted when going through Congress.
  4. How markets will react to those amended policies? It’s impossible to predict how markets will respond to a specific policy, or those amended through Congress.

Politicians typically receive more credit than is warranted for a strong economy and higher stock market, while also getting too much blame when going the other direction. The truth is that policies lag, and the economy and stock market are not always in harmony (i.e. 2020 in a nutshell).

The most significant implications arise in financial planning and not financial markets. Depending on the electoral outcome, proactive tax planning, charitable giving, and estate planning are likely the areas that will require the most attention. Not your investment portfolio.

No matter the outcome of the election, your team at Stonebridge is dedicated to your success by helping you navigate challenging market conditions and create strategies to address your unique financial planning needs.

Should you have any questions or concerns going into this season, please don’t hesitate to reach out.

Regards,

Tyler Martin, CFP®

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