As the discussion of the impending US presidential election begins to take center stage, I wanted to begin to share some of the thoughts coming from our sub-advisory partners. With former Vice President Joe Biden choosing his running mate Kamala Harris on Tuesday, what better time that to discuss any potential impact to investment portfolios should the scenario of a change in executive power come to play in Washington DC this November.
- Stocks have continued higher regardless of presidential party: As elections come up, we tend to get concerned about which party might be better for the market. Historically, the market has continued to rise, regardless of which party is in the White House. Since 1926, $1,000 invested in the S&P 500 would have grown to $8.96m as of 6/30/20, with a number of regime changes along the way.
- Divided governments and the U.S. stock market: Stock markets tend to post stronger performance when the White House and Congress are controlled by the same party, on average. We have seen this happen roughly half of all presidential terms throughout history.
- Market seasonality in election years: On average, the period known as “Mommies to Mummies” (May 1 to October 31) have historically performed worse than the period known as “Turkey to Tax” (November 1 to April 30). In election years, however, “Mommies to Mummies” tends to perform better than average, and “Turkey to Tax” tends to perform worse.
Election Watch: Investment Implications -- Capital Group
Election season can be a tough time for investors to maintain a long-term perspective, given the strong emotions often evoked by politics. Moving to the sidelines would be an understandable approach for anxious investors who prefer to wait and see what happens with a meaningful election. As history has shown, however, that is often a mistake. What matters most is not election results, but staying invested.
Consider the historical performance of the Standard & Poor’s 500 Composite Index over the past eight decades. In 18 of 19 presidential elections, a hypothetical $10,000 investment made at the beginning of each election year would have gained value 10 years later. That’s regardless of which party’s candidate won.
The perception that a Biden win would be a bad outcome for markets is not substantiated by the historical record on Democratic presidents. Investors should instead focus on his policy agenda and its potential investment implications.
If there is a Democratic sweep of Congress, US share prices are likely to price in an increase in corporate tax rates. This would bolster the appeal of non-US equities, especially if coupled with reduced trade frictions.
On the other hand, if Republicans retain control of the Senate, tax reforms are unlikely to pass. But, as most foreign policy decision-making resides with the president, we can still expect an improvement in international relations.
This combination of the tax status quo and a defrosting of international relations would be the best-case scenario for global markets.
Over the medium term, sector-specific issues may arise that could weigh down on the valuations of US healthcare and tech stocks. Investors should remain on guard if they are overly exposed to such areas.