The Presidential Election of 2020 is less than a month away and the atmosphere surrounding this election has many investors unsettled. Coupled with the multitude of changes already facing Americans, the idea of “staying the course” is causing a lot of anxiety. It’s being rated up there with the Y2K fear in 1999, which led to billions of dollars being spent on something that didn’t even happen.
Even though election years are full of information and misinformation, the Stock Market has historically shown that it seems to pay little attention. The circumstances surrounding this year’s election, however, are causing a very disruptive process and imaginations are running wild. Instead of just sticking your head in the sand, we have several suggestions for you that just might help calm at least some of your fears: (1) Watch your “media” diet closely; (2) Choose your audiences carefully; and (3) Turn your attention elsewhere.
Right now, the most important question for us to ask ourselves is, “Will capitalism still exist after the election?” If your answer is “yes”, stay put in your portfolio and its strategy. If your answer is “no”, it will make no difference where your money is – in the market, in the bank, in gold or silver, buried in your back yard or under your mattress. Capitalism is the engine for our world as we know it. Investing in the market is a long-term commitment that requires a strategy for going through the ups and downs. For over 200 years the stock market has been going up and down – on its way up. The stock market has been the long-term winner over other assets.
Politics will always be politics and different administrations will always be coming and going, but the stock market continues to gain value over the long term and reacting to an election is not a wise decision in our opinion. The fact is that our government has functioned well for almost 250 years and as divided as Americans are right now, the fundamentals of our government are still in place. It is important in anxious times, such as this election year, to remember that the best investors follow a long-term path to their goals and they are not thrown off balance by emotional responses to a political election.
Here’s something we can check out though. The stock market historically has been correlated to the winning party in election years. When the market has trended up for three months preceding the election, the incumbent party tends to remain in office. When the market has trailed down for the prior three months, the new party tends to take over.
We emphasize there is nothing to suggest a causal relationship between the market and the election of any party. The trouble with this correlation is that the three-month trailing performance could all be sucked up by a large reversal one day before the election. So, once again, we recommend keeping your politics and your portfolio separate!
Have a great weekend!