5 Things to know about Presidential Elections and the Market

5 Things to know about Presidential Elections and the Market

It’s been a long election season so far, and we still have months to go....  How do Presidential campaigns affect investing?  Here are five things to know about elections and the Market.

  1. The year of noise.
    Barron’s Magazine believes that “the bulk of the year will be consumed by election noise.”  This certainly has been true up to now.  John Kasich, Jeb Bush, Donald Trump, Ted Cruz, and the battle between Hillary Clinton and Bernie Sanders have all made the front pages—plus phone notifications, evening newscasts, late night comics, and, of course, Saturday Night Live.  And if you live in a contested state, the rhetoric is non-stop: news stories, advertisements, billboards, phone calls, and on and on.
     
  2. People are angry.
    According to the New York Times, the primary season began as usual, with many unexpected names leading the polls.  What's different?  The names that have stayed on top: Trump, Cruz, Sanders.  Why?  Some of the electorate is extremely angry, and many of the candidates are addressing issues people are concerned about, such as U.S. participation in the worldwide economy and the lack of well-paying jobs.
     
  3. The Market does not like uncertainty.
    When incumbents can’t run again, the S&P is volatile and tends to trend slightly negative (from about 1% to 2.8% down, per Deutsche Bank and Merrill Lynch).  However, this situation—where incumbents can’t run again—has only happened eight times since 1928.  That's a very small data set.  But again, uncertainty breeds uncertainty.
     
  4. What will the economy look like on Election Day?
    Economists have a difficult time predicting what the economy will look like at a specific point in time—such as when we go to the polls on Tuesday, November 8, 2016. For example, in November 2007, according to FiveThirtyEight, a forecasting survey put out by The Wall Street Journal called for slower than usual growth, but it assigned only a 1 in 3 chance of a recession.  When did the recession actually start?  One month later, and officially recognized in early 2008.
     
  5. Know the players.
    The President of the United States has a limited ability to alter the economy.  The Federal Reserve is responsible for interest rates and the money supply.  The President can influence fiscal policy—taxation and spending policies.  However, for the most part, changes have to be voted on and passed through Congress.  So, yes, elections do matter.  All elections.  Not just for President of the United States.