The US Election and the Markets: Not as connected as one might think

The looming US election is obviously a really hot topic right now, and it has led to a lot of questions about how it will affect the investment markets.  Over the last 2 weeks, I have participated in multiple webinars that have discussed this topic and these are the three key themes I have taken from them:

1. It isn’t worth trying to time the markets with the election.
2. Don’t fight the Fed.
3. Neither party is better than the other for economic development.

1. It isn’t worth trying to time the markets with the election.

One presentation went through the last ~80 years to uncover that the North American investment markets showed no specific correlation to the election… even the most hotly contested elections.  Sometimes the market went up before the election, and sometimes it went down.  Sometimes the market went up after the election and sometimes it went down. 

Their conclusion… just stay invested.  Whatever direction the market takes before/after the election, its generally short-lived and relatively mild anyways.

2. Don’t fight the Fed.

The US Federal Reserve is the institution that truly has an influence on the investment markets and the US economy.  If the Fed is lowering interest rates, that leads to the markets doing well.  If the Fed is raising rates, that eventually leads to the markets doing poorly. 

In early March, the Fed drastically cut rates to the lowest we’ve seen in a lifetime, which bodes well for the markets in the coming weeks and months.

3. Neither party is better than the other for economic development.

When you look back in history, at the economic growth of a Republican or Democratic President, it’s a saw-off.  Both parties have had more or less the same success/failure.  Instead, re-read Theme #2!  The Fed should get the credit for economic growth, not the US President.

Bottom line, it is not worth putting much emphasis on the election vis-à-vis the investment markets.  Sure, there are large issues in play for this election… racism, healthcare, geopolitical relations, and Covid response… but, the President’s influence on economic growth and the investment markets is overrated and should not be given much attention.

There were many key thoughts from these webinars, but these were the ones I found most useful in this context.  In the meantime, we hope you are doing well, and we will keep in touch. 

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