The Big Picture for Investors on the Debates

Editors’ Note: MarketMinder is intentionally non-partisan. We favor no political party or politician and assess political developments solely for their potential economic and market impact.

President Donald Trump and former Vice President Joe Biden went 10 rounds in the verbal boxing ring known as the debate stage on Tuesday night, officially kicking off the campaign’s home stretch. For 90 minutes, the contenders sparred with moderator Chris Wallace and each other over health care, the Supreme Court, taxes, COVID-19, foreign policy, trade and much, much more. As talking heads now weigh in on who landed which punches and theorize about how the debate will affect the results, we issue a timely reminder for investors: Presidential debates are good for cable news ratings and Saturday Night Live writers, but they won’t help you assess the election’s outcome or its influence on stocks.

We won’t delve into all the debate storylines—most are pure sociology, outside the realm of stock market drivers. Collectively, however, they illustrate what debates really are: political theatre. They are also reliable triggers for confirmation bias. Your opinion of who won the debate probably rests heavily on your personal opinions and the slant of coverage you choose. Pundits at right-leaning outlets will say Trump won. Left-leaning networks will give Biden the winner’s sash. Many cynics will say neither did. Both candidates know this and were playing to their chosen audiences, hitting all their talking points and applause lines. Triggering feelings to motivate turnout was the goal. In our view, that is a logical enough approach for them, since in all likelihood, people have already made up their minds about these candidates. Very few voters are genuinely undecided. Even those who claim to be so likely lean one way. Of those who are genuinely undecided, how likely is it that a debate like Tuesday’s changed anything at all? Ultimately, we suspect debates reinforce prior leanings, but the likelihood they flip anyone is exceedingly low. That is perhaps particularly true in this contest, given the extensive media coverage of Trump’s deeds and words and Biden’s long, long history on the national political scene.

Rather than get caught up in the noise, we think investors should take a higher-level approach. One, remember no president or party is inherently good or bad for stocks. US markets have done well and poorly under Democratic and Republican administrations alike. In the last bull market, stocks started rising in 2009–under the Obama administration—and continued through Trump’s first three years, until COVID’s lockdowns walloped the bull. Same goes for the economy. US GDP averaged 2.38% annualized in the 12 quarters before Trump’s 2016 win.^[i] It averaged 2.50% in the 12 between his election and 2020’s COVID lockdown-driven recession.^[ii] Markets—and the economy—care about policies, not personalities, and neither party owns good or bad policy. Both parties have wins and losses. That makes it critical to shut off your feelings and opinions when thinking about any election and your portfolio.

Two, understand that this race doesn’t hinge on debates or either candidate’s personality or popularity. The swing factor, always, is turnout. Which party will better motivate voters to cast their ballots? Will the Republicans’ unprecedented grass-roots efforts pay off? Or will the Democrats’ efforts to motivate mail-in voting win the day? Debates and cable pundits won’t tell you this. Nor will opinion polls or prediction markets—neither of which worked four years ago. Senate races in swing states are probably much better indicators, and they show extremely tight races. So keep a cold, critical eye on Texas, Arizona, Iowa, Georgia, Colorado, Michigan, Montana, Pennsylvania and the Carolinas and watch for candidates in either party pulling away. The likelihood any state’s Senate seats and presidential choice split parties is exceedingly low.

While we don’t know who will win the election, we do know the next five weeks will be extremely loud, with candidates and pundits alike trying to trigger emotions. Uncertainty could flare up, along with market volatility. That could easily last beyond November 3, given the high likelihood that it will take a few days or even weeks to know the winner, depending on the lag time in counting mail-in votes as well as the strong probability of recounts and court challenges from both sides. However, we will eventually have a winner, if not on November 3 then certainly by December 14, the day the Electoral College votes. Having that winner enables uncertainty to fall regardless of whether it is Trump or Biden—a tailwind for stocks. So focus on that, feel free to tune out the noise if you don’t find it interesting, and keep your feelings in a lockbox when making investment decisions.