The markets don't like uncertainty, including political uncertainty: That was proven again recently when they dropped overnight after the president announced his coronavirus diagnosis. And analysts have been split on the market's short-term reaction to whoever wins the November 3 presidential election.
But in terms of the market's long-term performance, it really may not matter who wins the Oval Office.
Many economists and financial experts would advise against basing your portfolio on who you think is going to win an election. As behavioral finance expert Morgan Housel recently tweeted, "Among the [long] list of predictions, few have as bad a track record as 'If X wins the election, the economy/stock market will do Y.'"
History bears out Housel's tweet. Ever since President Harry Truman was in office (1945-1953), there have been only two U.S. presidents whose terms ended with the S&P lower than they had been at the beginning of their term: Richard Nixon and George W. Bush.
All other U.S. presidents starting from the middle of the 20th century left office with the S&P higher than it had been when they began.
Historically, the stock market has trended up. Not ever-upward like Jack's beanstalk, to be sure, but more like a man climbing a staircase with a yo-yo, explains Neal Solomon, a CFP and managing director of Saratoga Springs, New York-based WealthPro, LLC.
The trick is to keep focused on the bigger picture.
"If your eyes are stuck on the yo-yo, you see it go up and down," he says. "But the big trend is that the man is climbing the stairs. He is going up even when the yo-yo goes up and down."
There are ways to position your portfolio to benefit no matter who wins the election. Economist Jamie Cox, managing partner of Harris Financial Group in Richmond, Virginia, says that investors have "two tracks" in terms of your investment strategy surrounding the election — and no, those two tracks are not "if Biden wins" or "if Trump wins."
The first track: "If you're already diversified, don't do anything," he says.
The second track: "If you're not diversified, then diversify. That would be the only circumstance where someone should make portfolio moves" in anticipation of an election, Cox says.
In Cox's work as a financial advisor, he says, he answers questions about candidates' potential effect on the market "a hundred times a week." He thinks people tend to overestimate the impact that presidents have on the market, particularly for this upcoming election.
"In this cycle, it's a coin flip," he says. "There's not going to be much difference [in the markets] no matter who wins. I have a feeling it won't be as volatile as people think."
Video by Stephen Parkhurst
CNBC anchor Jim Cramer, a former hedge fund manager, takes a similar view. "I think there's a genuine belief that it doesn't matter who wins. It doesn't matter about stimulus," Cramer said recently on CNBC's "Squawk on the Street."
There is an issue that will have a strong, clear impact on markets, and it's not the race for the White House, Cox believes. "What is the one thing that matters more than anything right now? It's the pandemic," he says.
"Being able to return to normal will have an automatic positive effect on markets because it will increase consumption and that is really, really important. That should be a far bigger focus to investors than the outcome of the election."
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