Elections and the Stock Market

If you watch the news or follow social media at all, there is a ton of focus on the US election.  Only 1 week to go.  What is going to happen?  And along with that, there is a lot of nervousness.  “Maybe I should stay out of the market right now”?  “What should I do”?

If you take a look at these charts you’ll see that stock markets go up more than they go down, through all presidents.  It doesn’t matter if they are Democratic or Republican.  Policies matter more than politics.

If you look at the various combinations for leaders of the 3 branches of government in the US the average return in the S&P500 is 12.6%/year since 1945.  No party has consistently experienced superior market returns.  So it doesn’t matter as much to markets who is in power.

Things could definitely be volatile for the next 2 months until the uncertainty about the election is over.  Look at how the Dow Jones moved during election night in 2016.  I went to bed when the futures markets were way down but the next day they were up as well as markets being up 6 months and 1 year later.

 

What’s the message?  If you are invested, then it is best to stay.  According to Damien Fernandes of TD Asset Management, “This recession is very different from prior recessions and instead has more similarities to natural disasters (like Hurricane Katrina).  We looked at how those events played out. Katrina hit, employment collapsed 10%, then it rallied back to previous highs within 24 months. If we look at the Financial crisis in 2008, employment collapsed and recovered over a much longer period. 2 years later, employment was still 8% below its peak. If we look at our current experience, we are directly tracking the Katrina recovery, on an even steeper trajectory upwards.

If we look at retail sales in the financial crisis, it took over 3 years to recover from the lows. If I told you in April that retail sales would be higher in September than they were in January, you would have thought I was insane. But here we are, and that’s the case. The government provided more support than ever anticipated in a record amount of time. This is what we mean when we say this is a different recession, the data doesn’t lie!”  They are optimistic about the future with the companies they own.

Businesses and economies are still recovering and many companies are doing well.  It will take time to get the economy back to precovid.  We are in a time period of extra low-interest rates for a long time as well as massive government deficits.  According to Frances Donald, the chief economist at Manulife, in the past massive deficits were a concern but are not as much right now because it is the US and Canadian governments who are buying the bulk of their countries debt, so not as much foreign ownership as the past.

As always a well-diversified investment strategy owing high-quality investments will protect your money and help grow it.

Let me know if you have any questions.

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