Amid election uncertainty, market pros stay the course
NEW YORK — This presidential election is clearly unlike any other, but investors might be wise to treat it like most of the previous ones.
History shows the stock market ’s performance doesn’t correlate that closely with which party controls the White House: It tends to rise following elections regardless of who wins. Because of that, many fund managers are sticking with their investment strategies and focusing on the long term — even in a year when the election’s outcome could be in doubt past Election Day, and the nation is in the grip of a pandemic.
“The election is kind of noise in the short term,” said Kari Montanus, senior portfolio manager at Columbia Threadneedle Investments. “It doesn’t mean you dismiss it completely.”
Most fund managers are holding stocks that they intend to hang onto for years, which means they care more about the longterm prospects for corporate profits. In that case, what ultimately happens with the coronavirus pandemic — whether and when a vaccine is widely available, for example — is much more important than who sits in the White House.
“As investors, we are focused first and foremost on the economy and on corporate earnings, because that’s what moves stock prices,” Montanus said.
Here’s a look at how market professionals are viewing the upcoming election:
Does Wall Street care at all about the election?
Money managers aren’t pretending as if the election won’t have any consequences. In the short term, they’re fully expecting the
big swings that swept the market in recent weeks to continue until Election Day, and perhaps beyond.
Beyond?
A contested election is a worst-case scenario for investors. Markets famously hate uncertainty, and not knowing who will lead the United States for weeks following Election Day would be a huge unknown. President Donald Trump has refused to commit to a peaceful transfer of power if he loses.
Consider 2000, when the S&P 500 dropped 5% in about five weeks after Election Day before Al Gore conceded to George W. Bush. That, though, also happened during the nearhalving of the S&P 500 from March 2000 to October 2002 as the dot-com bubble deflated.
How bad would a contested election be for the market?
If one were to happen, strategists at Goldman Sachs say the S&P 500 could fall to 3,100 in the near term. Compare that with the 3,700 level for the S&P 500 that Goldman Sachs expects if the election were to yield a divided Congress and 3,400 if Democrats were to sweep the House, Senate and pres
idency.
Even if the outcome is contested, most of Wall Street expects a clear winner to eventually emerge for the White House. Whomever it is, many investors say the resolution of the market’s heavy uncertainty should ultimately help it rise afterward.
So would a Democratic win be better for the market? Republican?
In the end, many professional investors say it likely doesn’t make that much of a difference. Going back to 1933, the S&P 500 has had an average annual gain of 12.9% under an entirely Republican- controlled Washington and 9.3% under Democratic control. The best returns have historically come with a split Congress and a Democrat in the White House, though a split Congress with a Republican president has been just a hair behind.
“Presidents get both far too much credit and far too much blame for what’s happening in the economy and the markets.” said Darrell Spence, an economist at Capital Group, which manages more than $1.7 trillion.
“The U.S. economy is large and complex, so there is a limit to how much a person or policy can really move that around.”