4 Facts to Know about the Election and the Market

4 Facts to Know about the Election and the Market

A recent article on the Edward Jones website says that, although the results of the upcoming election will be reflected in short-term market reactions, the firm does not expect the results to be a “determining factor in the broader direction of the financial markets over the long run.”

“When it comes to your portfolio,” the article says, “ensure your financial goals, not election uncertainties, are your guide.”

The article outlines four insights about the election:

The market does not “win” or “lose” on election day. “The average total return  for stocks in the  two years following an election year is 10.5% per year, with only four instances in which the market was down over that two-year period,” the article says, adding, “This indicates an election outcome doesn’t represent a larger downside catalyst.”

Differing policies may rock the boat but won’t sink the ship. The chasm that exists between the policies of Trump and Biden, while perhaps more “acute given the existing pandemic and current political environment,” are not unique to this election, the article notes.

Elections matter, but fundamentals matter more. History shows that over time, market performance is driven principally by fundamentals, not elections. According to Edward Jones, the economy will “gradually recover amid slowly declining unemployment and eventual renewed business spending.”

When it comes to your portfolio, vote with your goals, not the polls. “Political changes occur frequently, and your investment timeline will likely span numerous presidential terms,” the article says, adding, “Ensure you’re making decisions aligned with your financial goals rather than election headlines or political parties.”

The article concludes with the following advice for investors:

  • “Staying invested and building an appropriately balanced, diversified portfolio can be an effective strategy for navigating market volatility.”
  • “We think the economic backdrop warrants appropriate balance across equity sectors, while the broader global rebound still supports some diversified exposure to international markets.”
  • “An appropriate allocation to equities, along with exposure to those with rising dividend potential, can help position for the impacts for inflation over time.”
  • “Regardless of which party is elected in 2020, it’s not unreasonable to expect taxes will rise at some point in the near or distant future.”