Amid elec­tion un­cer­tainty, mar­ket pros stay the course

The Morning Call - - Business - By Stan Choe

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 long-term 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 near-halv­ing 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 pres­i­dency.

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.”

CRAIG RUTTLE/AP

His­tory shows the mar­ket’s per­for­mance doesn’t cor­re­late closely with which party con­trols the White House.

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