On November 3rd, 2020 Americans will head to the polls to vote in what will be another emotionally charged election south of our border. The upcoming vote has caused much concern with investors as headlines pump up the narrative that markets will be drastically affected by the outcome. Is this true? How have markets reacted to US elections in the past? Are Republicans better for markets? Does policy matter?
Here are the key facts about US elections that we think are important to keep in mind over the coming weeks.
- While political party policies can have an impact on the economy and markets, its rarely immediate or profound.
- Market fundamentals, such as earning growth and valuations drive markets, not just economic growth.
- Since 1945, the S&P 500 index has done better under Democratic presidents compared to Republican presidents even though the latter is perceived to be more pro Wall Street.
- Our position in the business cycle (recession, expansion etc) has a greater effect on markets than politics.
In short, we need to be aware of the election and the potential effects on the businesses that we own but our continued recovery from the COVID induced recession will likely have more of an impact in the long run.
For more detail including a ton of interesting facts about past US elections, see the full article called A(nother) random walk down Pennsylvania Avenue, written by Philip Petursson and his team at Manulife Investment Management.
We are optimistic about the investment opportunities going forward as there are many companies experiencing growth while still trading at discounted prices. A conclusion to this election and further progress on a vaccine for COVID 19 are the keys to continued growth into 2021. We will be watching both very closely to see if changes need to be made within your portfolios.
If you have any comments or concerns, please give us a call!