The Other Candidate Won't Destroy the World
by Russ Blahetka on Oct 19, 2016
In a few weeks’ time, we will be holding presidential and other office elections in the US. This election season has been filled with speculation and dire predictions based on predicted outcomes. What will happen to the economy and markets if Candidate A gets elected over Candidates B, C, or D? Investment experts, such as Mark Cuban and Marc Faber, allege economic devastation will befall us if “the other candidate” should win. The media is quick to pick up on such speculation and report them as fact. Fear, uncertainty and doubt (FUD) sells, and this election cycle is providing an over abundant supply FUD this election cycle.
While we cannot predict the future, we can see what has happened in the past. There have been dire predictions in past elections if the other party won, so the rhetoric of today is nothing new. Bloomberg View reports “The Standard & Poor's 500 Index rose in more than 85% of presidential election years from the 1960s through 2012, while 12-month gains were only achieved in just under 75% of all other years. The only instances when losses coincided with presidential elections were 2000 in the aftermath of the dot-com bubble and 2008 during a global financial crisis.” (Winkler, Matthew A. “Investors Like Election Years, No Matter Who Wins.” Bloomberg View. August 1, 2016)
What does seem to have a larger affect the markets than the occupant of the Oval Office is the party that occupies Congress. In an MFS Investment report entitled “Primaries, Caucuses and Elections–Oh My!,” the Dow Jones Industrial Average historically performed better when there was a Democratic President and a Republican Congress, followed by a president and congress from the same party. The mix which historically seems to perform worse is a Republican President and a Democratic Congress.
Why We Focus on the President
There is only one president. It is easy to vest the president with more power than constitutionally allowed because the president is one person and it is easier to focus on one person than 435 Representatives, 100 Senators, and 9 Supreme Court Justices. However, while many consider the office of the president as the most powerful in the free world, it is also important to understand the limits of the office. Brian Jacobsen, chief portfolio strategist with Wells Fargo Funds Management, put the president’s power in perspective. “The President isn’t a dictator,” he said. “Just because he or she runs on a platform, it doesn’t mean that agenda will be put in place.”
The office of the president is not the same as CEO of a large company. While there is certainly power in the office, the President must usually rely more on relational power. The President does not control taxes, that is the job of Congress. While the president may want to negotiate certain agenda items, it could all be for naught if Congress does not agree.
What Does All This Mean?
First and foremost, understand the markets will be a bit nervous prior to the election and may be for some time afterward. This is due to the uncertainty of who will win. There could be a short period of adjustment as the president elect starts the transition process. Over time we will likely see the markets relax. Like Brexit, any major moves will likely be temporary.
What can you do in this period of uncertainty? The first thing is not to let fear guide you. If you work with an advisor, speak with them to develop a strategy appropriate for your situation. The strategy for a 30-something may be different than a 70-something. If you don’t work with an advisor, develop a plan that is objective and meets your investment goals, then stick with it. Most investment plans fail to work because investors allow fear to lead them.
It is OK to acknowledge fear exists. It is a survival mechanism. Don’t let it over rule your best interests. Most of all, don’t try to guess who will win, and then determine how the market will react to the result. Markets have a funny way of zagging when investors expect it to zig.
*This content is developed from sources believed to be providing accurate information. The information provided is not written or intended as investment, tax, or legal advice and may not be relied on for purposes of avoiding any Federal tax penalties. Individuals are encouraged to seek advice from their own investment, tax or legal counsel. Individuals involved in the estate planning process should work with an estate planning team, including their own personal investment, legal or tax counsel. Neither the information presented nor any opinion expressed constitutes a representation by us of a specific investment or the purchase or sale of any securities. Asset allocation and diversification do not ensure a profit or protect against loss in declining markets. This material was developed and produced by Vestnomics Wealth Management, LLC to provide information on a topic that may be of interest.