"Sitting on a sofa on a Sunday afternoon”
Going to the candidates' debate...
Laugh about it, shout about it,
When you've got to choose...
Every way you look at this you lose."
"Mrs. Robinson" as performed by Simon and Garfunkel
I have managed money for 23 years and through six Presidential election campaigns, including this one. Interestingly, nothing even resembling a market collapse has ever occurred immediately following the November election or a January inauguration.
Could this election cycle be different? It's always possible. I have no crystal ball. But an analysis of market activity surrounding Presidential elections reveals that they rarely cause markets to surge or dip long term. An uptick or downturn may occur when votes are all accounted for, but it's rarely a lasting one.
Consider this: If you owned five McDonald’s restaurants, would you sell them because of a potential election result? Probably not, so then why would you sell your stock in that company? Now, your investment situation is unique, and there may be other reasons to act, like your individual financial goals, risk tolerance or age. But acting specifically because of a potential election result is probably not wise.
Please understand. This column isn't about politics. It's about capital markets. The color of interest here is green, not red or blue. Wealth managers harbor no politics when it comes to investments. We take the investment world that is handed to us, and we work within that framework to attempt to achieve our clients' financial goals, regardless of which party is in power. We have no choice, nor does the average investor.
Do economic policies and tax initiatives propagated by public servants impact markets? Of course. But for a number of reasons, oftentimes campaign promises regarding these are abandoned after election day.
It generally takes both houses of Congress to pass a new law that impacts markets. Getting such a bill through both houses is seldom guaranteed. Secondly, proposals are subject to amendment and change, and rarely become law in their original fashion. Thirdly, things happen which may alter the decision to even attempt to gain passage for a new law impacting markets.
So when we hear a candidate talk about economic policy or tax proposals, it's usually smart to take that verbiage with a grain of salt. Wars, recessions, rate of inflation, Federal Reserve policy decisions, real estate bubbles, global market trends, trade agreements and even natural disasters can alter how a public servant follows through on campaign rhetoric.
Four years ago the doomsayers were working overtime. November and January came and went, and markets held their own. In fact, the bull market continued to run until a global pandemic halted it. Eight years ago, 12 and 16 and 20 years ago, we also witnessed elections without major market upheaval. Some elections returned the same party to power; others ushered in governance by the opposition party. For capital markets, life goes on. Interest rates impact markets far more than the outcome of Presidential elections.
Margaret R. McDowell, ChFC®, AIF®, author of the syndicated economic column “Arbor Outlook,” is the founder of Arbor Wealth Management, LLC, (850-608-6121 – www.arborwealth.net), a fiduciary, “fee-only” registered investment advisory firm located near Destin. This column should not be considered personalized investment advice and provides no assurance that any specific strategy or investment will be suitable or profitable for an investor.
Catch the latest in Opinion
Get opinion pieces, letters and editorials sent directly to your inbox weekly!