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Market Perspectives: A 20/20 Look at 2020’s US Elections

In every US Presidential election cycle, investors on both sides of the aisle tend to scrutinize campaign promises and what those could mean for investments and the economy. Unsurprisingly, many Democrats see President Trump as bad for the US and its economy, while many Republicans see former Vice President Joe Biden similarly. But making investment decisions based on your party preferences can be dangerous.

We believe politics are an important driver of markets and the economy, but too often, investors allow their own political and social biases to influence their economic and investment analysis, which can create blind spots. For that reason, our political commentary is intentionally non-partisan. We favor no politician nor any political party and assess developments solely for their potential market impact (or lack thereof).

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Stocks Don’t Love a Party—They Love Gridlock

When analyzing politics’ potential economic and market impacts, many investors believe “market friendly” candidates and economic policies are needed for stocks to rise. But markets don’t have a preferred party, and stocks have risen on average regardless of which party is in the White House. Don’t believe it? History shows stocks have averaged 9.5% annual returns during Republican presidential terms and 14.8% annually during Democratic presidential terms.i Stocks just don’t play partisan politics.

Rather than a political party or candidate, what stocks really despise is uncertainty. Political and economic uncertainty comes in large part from new legislation, which changes the rules for institutions and creates economic winners and losers. If a company fears government regulations may change in a year or two, it may not pursue new projects the political economy deems unprofitable after legislative changes.

We believe an underappreciated bullish factor for markets is the potential for political gridlock. Though gridlock can be frustrating from a social standpoint, it can mitigate potentially sweeping legislative changes and lower the probability of turning campaign promises into reality. This is why your 2020 political and economic analysis should focus not just on the US presidential election, but on congressional races too. These contests together will determine the level of congressional gridlock, which provides some clarity for businesses, institutions and investors.

The 2020 Presidential Race Doesn’t Feature Your Typical Candidates

Looking specifically at the presidential election, there are important factors we believe will make it more difficult than many people assume to declare a winner. Despite a strong summer lead in polls, we don’t believe Biden’s path to the presidency is necessarily easy. Typically, the Democratic Party wins with a fresh face (e.g. Grover Cleveland, Woodrow Wilson, Bill Clinton and Barack Obama). Many of these candidates surprised many of the institutions, government workers and political analysts studying the elections at the time.

However, Biden isn’t a fresh face enabling the party to brand the campaign in ways that inspire voters. Rather, he has a lengthy tenure as a US Senator and two terms as Vice President. When we study political history, we find many well-known Democratic candidates have lost in the past (e.g. Hillary Clinton, John Kerry and former Vice President Al Gore).

President Trump is also in an unusual situation. Historically, it’s difficult to unseat an incumbent, but it may be more likely during or immediately following a US economic recession. Compared to 2016, President Trump had a similar disadvantage in polls over the summer months, and Biden is out-fundraising Trump, as did Clinton. However, the COVID-19 pandemic, government-instituted lockdowns and wonky economics throw a wrench into the situation and historical comparisons. We believe whoever wins, largely depends on which political party can motivate their base to get more people out to vote.

What Do 2020 Elections Mean For Stocks And Your Portfolio?

From an economics and investment perspective, we believe stocks likely continue to climb through 2020-2021 regardless of who wins the presidential election. Further, we believe cumulative stock market returns in 2020 and 2021 should be similar regardless of whether we have a Democrat or Republican president, though returns may come at different points in that timeframe.

Regardless of whether Trump or Biden wins the election in November, we believe long-term investors are better served refraining from altering their investment strategies based on the election alone. One of the worst things you can do is react emotionally to campaign rhetoric or the election outcome, sell out of stocks and potentially miss out on future returns. Remember to study what politicians do, not what they say and try to keep your own political beliefs out of your investments decision making. If you have trouble doing so, a trusted investment adviser may be able to help.

Come back to this page regularly to stay up to date on how Fisher Investments views the current political economy and new developments’ potential impact on investments and economics. Or call us at (800) 568-5082 to speak with a qualified representative who can provide further guidance on your personal situation.

i. Source: Global Financial Data, Inc., as of 7/16/2020. S&P 500 average annual total returns in years Democratic and Republican presidents are in office, 1926-2019.


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