People love to ask me what I think “The Markets” are going to do once the results of an election cycle in our country are confirmed on election day. I worry my initial response is something like Mike Gundy being asked his opinion about fan feedback on Twitter. (To be clear - his opinions about Twitter are his own.)
I hate to be dismissive of anybody’s question, and this particular question is certainly a valid one. I have to remind myself of that because I believe wholeheartedly that short term events like election cycles, natural disasters, even booms and busts in economic cycles are just noise in light of long-term investment strategy. However, questions about short term events are still worthy to be asked.
The data would show that there is no easy way to predict what moves the market will make surrounding an election in the short term. It is not as simple as – Republicans win = markets go up. Democrats win = markets go down. And, vice versa. If it were that simple we’d all vote the same way - with our pocket books. And yet, that is what we tend to expect. If my candidate or political party wins, surely, that will mean the investment markets will respond positively.
My part of the country, Texas, in most recent history, has been a Republican stronghold. The majority of voters in our state expect the investment markets to do well if they see more red on a political map than blue. (Note, I said the “voting majority” not “everyone” – please do not be offended if you live in Texas and vote blue or whatever else. I see you!) But, take a look at the chart below. Now, I realize this is a chart that illustrates how the S&P 500 performs when each major political party controls the White House and not necessarily the effects of the midterm elections, but the same point holds true: Investment markets see good and bad times under both red and blue political ideologies but overall see more good than bad.
I am not saying that election cycles have no bearing on short term investment market volatility – or that political ideology does not matter – I am not apolitical. What I am saying is that investors should focus more on their long-term investment strategy, remain diversified, and plant their investment foundation on the fact that in the long run “The Markets” are going to continue to benefit from global economic progress and innovation.
Happy Day-After Election Day everybody!