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Tuesday, October 1, 2019

Investment In The Run Up To The U.S. Presidential Elections 2020


As one approaches what is undoubtedly going to be a bitterly contested and cantankerous American election, what is the stock market's take going to be? Every four years, the impending approach of the presidential election sets off speculation and tongues wagging about all sorts of matters including which way the investor sentiment is going to swing during the competing political campaigns.

What do past trends show?

Interestingly, when you study the S&P 500 Index for election years since 1928 years, there have been three occasions when investments have shown a negative return. The returns obtained in an election year closely mimic those of the S&P 500 long term returns.

The S&P 500 return during the election years between 1928 to 2013 has averaged 11.2%. While this trend is indicative of a pattern, it is not something that would be playing on an investor's mind while making decisions about where to invest in an election year.

Should the election year have any bearing on investment decisions?

The election year is a time when emotions run high, especially in these digital times. Should one get swayed by the euphoria expressed by some or dismal doomsday pictures presented by others and temper one's investment decisions accordingly? Well, not really, as any decision, especially one involving investment should be based upon what one's long term goals are and one's ability to bear the risk.

This holds notwithstanding which candidate one supports for President and who ends up in the White House after the election.

Impact of election year on industry

One cannot deny the possibility of the impact of election-year uncertainty on industry and this is especially true of commercial real estate. Investors in this segment are inclined to adopt a wait and watch attitude in this period in time and are therefore not too keen on making any substantial investment commitments.

That being stated, the primary presidential candidates can influence the economy in the election year, in that their purported policy statements can impact the stock market and liquidity. Investors do get affected by the kind of news that they get to see or hear about what directions these candidates want to point public policy in. 

What happens when there is no outright presidential front-runner

In the above scenario, one can probably look at market volatility. A sitting president not looking likely to get reelected can cause some amount of uncertainty in the capital market. That happens on account of the possibility of a break in government policies. Some 40% of investors made changes to their investment portfolio in light of the run-up to the 2020 presidential elections as per the RBC Capital Markets Survey report released back in April.

That being stated investors seem pretty inured to political goings-on. This is evidenced by the stock market shrugging off reports of the whistleblowing complaint against Trump or even the possibility of impeachment proceedings being initiated against the president. Investors are if anything hard-nosed realists who look beyond the charged atmosphere and din surrounding a presidential election.

Conclusion

Every four years there is a great deal of excitement surrounding the run-up to the presidential elections and the stock market is no exception. While past trends may have shown an 11.2% rate of return during the year of a presidential election, this is not going to weigh heavily on the minds of investors.

All the hoopla surrounding the presidential elections shouldn't have any profound bearing on one's investment decisions, given that these are always based upon a sound long term strategy and the capacity to bear the risk. One cannot deny an impact on industries like commercial real estate where an abundant sense of caution is witnessed during the presidential election year.

There may be some impact on account of concerns regarding continuity in policy, particularly if the sitting president is not sure to be reelected, but overall investors are not given to rocking the boat unless something really dramatic happens. All in all, there may be a bit of a kerfuffle from time to time, but not much drama on the U.S. stock markets on account of the presidential election.


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