Markets

3 Reasons the Stock Market Doesn't Care About the Election

The election is upon us and tensions are running high. You likely have strong opinions about the outcome. Maybe you fear economic, financial, or societal turmoil if "the other guy" wins. If that happens, it might even make sense to get out of the market and sit on the sidelines until things cool down.

Or does it?

The truth of the matter is that it might not really matter what happens on Nov. 3.

Why is that?

Well, for starters, markets have generally performed well in election years, regardless of who wins. Furthermore, there have only been three Presidents since the 1920s that oversaw a stock market decline during their time in office. All other presidents, both Democrat and Republican, have exited office with the market higher than when they were sworn in. And finally, the coronavirus is going to have a heck of a lot more influence on markets than the next president will.

A patriotic hat of red, white, and blue stripes and stars sitting on top of many US $100 bills.

Image source: Getty images

1. Markets do well in election years

Elections can prompt volatility, which in turn can prompt fear and the desire to move to the sidelines until things calm down. But the reality is that markets have done just fine in election years. In fact, performance in election years has historically been positive, regardless of who wins the election.

Sure, maybe this time is different. After all, there is no guarantee that stocks will close 2020 on a high note, or that markets won't riot after the election result is known. Heck, stocks could fall into a bear market because we don't know the outcome of the election on Nov. 3.

At the end of the day, I'll take historical certainty over worried speculation. And the historical record is clear: A presidential election is not, in and of itself, a reason to move out of the stock or bond markets.

2. Stocks go up under most presidents

Maybe it's not the election itself you're worried about, but the four years that follow. Maybe you're a true blue democrat or a dead red republican, and you're positive the other party spells doom for your investments. But in reality, stock markets have gone up under most presidents.

A horizontal bar chart of the stock market performance of each president since Harding.

Only Presidents Hoover, Nixon, and George W. Bush have left office with a lower market valuation than when they took office.

Sure, you might hate the other party's policies, and you certainly don't have to agree with everything they do. But stocks tend to move higher over time, driven by the upward progress of the economy and the growth of corporate earnings. Unless you think a president is going to change that, try to drown out the noise and focus on what really matters. Because ultimately, it's the economy and profits that move markets.

3. It's the coronavirus, stupid

In 1992, Bill Clinton's campaign strategist James Carville coined the phrase "it's the economy, stupid" in reference to the dominant theme of the times. Nearly thirty years later, there are a host of important issues, but in reality, the coronavirus is likely to remain the dominant theme. Let's face it: If we don't get a handle on COVID-19, it's tough to envision markets continuing to hit new highs.

As long as there are restrictions on our daily lives, earnings estimates are mostly guesses, and companies can't realistically set future budgets or plan capital-intensive expansions. A President Biden or President Trump might have different approaches to the pandemic, and one approach might be better than the other. But last time I checked, neither of them is a doctor nor biologist. And neither will be the one to identify a vaccine or put an end to earnings estimates and corporate uncertainty.

At the end of the day, scientists, not politicians, are the most important players in global financial markets right now. That means it doesn't make much sense to overreact to what happens come November. The next President of the United States is just one tiny piece of a very complicated economic puzzle and certainly not one that should keep you on the stock market sidelines.

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