How Will The Election Impact Markets?
Anytime there is a presidential election on the horizon, it is natural to wonder how the market will react to the decisions voters will make. Even in a year where there are so many other important issues from climate change, racial inequality, the makeup and objectivity of the Supreme Court, healthcare, and a global pandemic, the economy remains the top issue for voters. The economy and market aren't the same things but the focus on the economy speaks to how important we consider our financial fate and how it might change, or not, as a result of the election.
Though we crave answers, the reality is that no one can tell us how the market will react post-election any more than they can tell us who will win. Any prediction is just that, a best guess at what markets might do in response to the next administration. It's a bet on the perceived impact the president will have on the things that impact businesses' bottom lines: taxes, regulation, trade policies, and so on.
We might think there is some method to the madness, or that one party will be better for the market than the other, but if we use history as our guide, there is no evidence of a pattern in the stock market's growth under either political party. Take a look at the (just under 4-minute) video below from Dimensional Fund Advisors to see how markets have performed under each president all the way back to Calvin Coolidge. The only pattern we find is that the stock market has continued to provide long-term growth throughout Republican and Democratic administrations alike.
That's certainly not to say we won't have short-term volatility in the days ahead but it's a good reminder that stock prices aren't purely dictated by current events. No matter what Election Day brings, there are still plenty of reasons for businesses to be optimistic and plenty of opportunities for us as investors to participate in their future growth.