IS THE MARKET POLITICAL?

In the days and weeks leading up to November’s election, the only thing that featured as prominently in the media as campaign attack ads were prognostications about how this election cycle would affect the market.

Many predicted that a switch in party control of Congress would spark a securities sell-off, while others thought gridlock would be just what the markets wanted. Investors who like to vote with their portfolios were left in a quandary about what they should be buying and selling.

Setting aside market speculation for just a minute, let’s consider how history has treated the 3rd year of a presidential term, regardless of what party holds the control. Going back to 1935, the 3rd year of a president’s term has never been negative, if you’re looking at the U.S. market as a whole. In fact, returns for 3rd years averaged about 23% per year.

It seems as though history is telling us that markets don’t really care what happens during mid-term elections and this one was no exception. The day before, the day of and the day after this month’s election all proved positive days for the markets. There was nary a blip on the radar.

Now that we’re on the other side of the election, however, there’s new speculation abounding about what legislation might be passed under this new Congress. The answer remains the same: the market doesn’t care.

Free capital markets will always factor in political division, which is one of the strong points about our system. Differing viewpoints will emerge when one party stays in power for a long period of time, even within that political party. Investors should breathe easy knowing that while political indecision may seem disturbing, it is actually a stabilizing force for the markets. Just another truth that defies intuitive and popular thinking.

So, if you’re still wondering where to put your money right now, the answer is the total market. There’s no specific sector that is going to perform a miracle based on the outcome of the election. Furthermore, if the positive 3rd year trend doesn’t hold up, the market is still the place to be. It is fueled by the gears of capitalism that continue running no matter whose hand is at the controls.

 

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