The Dangers of Partisan Bias Now

Editors’ Note: MarketMinder’s commentary is intentionally nonpartisan. We favor no politician nor any political party and assess political developments exclusively for their potential impact on investments and markets.

Ever since America’s historically close election on November 3, emotions have run high over the outcome. Those emotions hit a crescendo Wednesday, after Georgia’s Senate runoff elections seemingly concluded and rioters interrupted Congressional proceedings to certify Joe Biden as President-elect in the Capitol. There is a lot to say about all these developments themselves, of course, but little that hasn’t been said in virtually every media outlet nationally. Instead, we think developments since the election—and especially yesterday—highlight a key point: It is critical to set your political views aside when assessing investments. Despite widespread fears the election’s outcome and/or related instability would hurt markets, stocks are echoing that very message now.

Throughout 2020’s election cycle, we heard pundits of both political persuasions warn of a market rout if their side didn’t win. But Election Day was 72 days ago—10 full weeks plus two days. There are only 13 days until Inauguration Day, when this election’s news cycle should conclude. In those 72 days, America’s S&P 500 Index is up 13.6%.^[i] Sure, that is behind the MSCI World’s 16.5% over this span.^[ii] Maybe political angst explains some of that lag. (Although we would note it likely has more to do with November’s value countertrend rally.) Even Wednesday, as the news was breaking in the Capitol, stocks rose—and S&P 500 futures climbed after trading concluded.^[iii] Markets opened up sharply Thursday morning, too. While we would never draw big conclusions from one day and definitely not from one after-hours session, they merely add to the preceding 10 weeks’ evidence.

There is a very long history of investors overrating political outcomes. Back in 2008 and 2009, we can keenly recall many Republican-leaning investors fretting Barack Obama’s election would spell doom for markets—with the rationale hinging on everything from the “Bush tax cuts’ repeal” to fears of bank nationalization to financial and healthcare reform. Democratic-leaning investors said very similar things about Donald Trump in 2016, with some left-of-center think tanks arguing his stance on issues from trade (NAFTA renegotiation, China and more) to immigration to foreign relations would roil markets. Regardless of your view of any of these issues—please hold whatever opinion you like—it is critical to note that the feared market fallout never materialized. In each of these cases, selling on political fears would have been enormously costly—and yes, we remember very well that Obama’s election and inauguration occurred during the deep bear market accompanying the global financial crisis. Fears of a big leftward policy shift lasted far beyond March 2009’s low. So those acting on these worries faced a very difficult predicament: When do you get back in? If you are considering taking action now, you must consider that very question.

This is where many would eschew Sir John Templeton’s warning and argue, “This time is different.” Perhaps in some ways it is. But again, look to markets: To believe stocks still face a political cliff of sorts ahead tied to the contentious election is to assume investors are blissfully unaware of what has happened in the last 72 days. But that isn’t how markets work—they are efficient, in our view. They weigh headlines, opinions, forecasts and views, price them—and move on.

To us, the message markets are sending is simple: Let your politics be your politics and your portfolio be your portfolio. Draw a hard line between the two. In our experience, if you need equity-like growth for some or all of your portfolio, bias risks your financial health.