Here are some final thoughts and predictions for the post-election/market dynamic.
- Presidential elections come around every four years. They are not surprising for the market. Therefore, volatility due to the election is usually subdued. In 2000, there was a surprise in the form of the Florida recount/hanging chad debacle. In 2008 the country was in the throws of the Great Recession that was coincidental to the election.
In most other cases, stocks move modestly in one direction between Oct.1 and Nov. 30. Since October 1, 2020, the S&P 500 Index has moved down a modest 0.41% as of today’s opening price.
- There is an old stock market adage that goes something like this, “Sell the rumor and buy the news.” This comes from the observation that, because the stock market is a discounting mechanism, selling takes place ahead of an event…like an election. Following the event becoming a reality, since “everyone” who wanted to sell have sold, the buyers step in. This is something we could very well see in the wake of this highly anticipated election.
- What could happen if Trump is re-elected?
- Negative: He presses China on trade and attempts to “punish” them for COVID. Stocks will likely suffer in fear of a new phase in the trade war.
- Positive: Tax rates will remain in place and potentially decline. Stocks like tax cuts…at least initially.
- What could happen if Biden is elected?
- Negative: Capital gains taxes move to the same level as ordinary income. A rush to sell stocks ahead of the new year might kick off a wave of selling.
- Positive: An infrastructure bill might be at the top of the list of government spending next year. Stocks would likely move higher on this spending and boosting of GDP.
- Does it really matter who wins the election?
- To the electorate, the effect will be significant. I predict that half the country will be in a somber mood tomorrow. I predict “Canadian citizenship requirements” will be a top Google search over the next few days. These predictions are not directed at voters of either political party.
- To the stock market, the effect of the election will likely not matter much. It never has to any measurable degree. The President has rarely had a significant impact on markets despite how much they might take credit or shun blame. There are simply too many other factors (i.e. Federal Reserve, global currency, technology advances, entrepreneurism, etc.) that influence stocks more than presidential posturing.
- PREDICTIONS (Otherwise known as a fool’s errand.)
- Stimulus is passed regardless of the election outcome.
- Stocks are higher at the end of the year.
- Christmas spending will be “off the charts” as consumers try to show generosity to loved ones and put 2020 behind them.
- Stocks will decline once the vaccine is released as investors shift to a new group of leadership stocks and the prospect of further stimulus dies. After a 15% decline, stocks will resume their move higher.
- The winner of the election will be known by early tomorrow morning.
- Trump wins re-election…but, maybe it will be Biden.
- The sun will “rise” in the east and “set” in the west tomorrow and in the days to come.
- COVID will continue to act like the virus it is.
- Corporate profitability will explode higher in 2021 as the economy gets back to “normal” following a 2020 that saw massive reductions in expenses.
- Butler University’s men’s basketball team wins the NCAA national championship in 2021.
As always, we remain focused on navigating the investing waters using our experience and resources. No matter what happens tonight or in the days/weeks that follow, we will adjust with the goal of delivering results.
Kessler Investment Group, LLC
All information above is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. All economic performance data is historical and not indicative of future results. The market indices discussed are unmanaged. Investors cannot invest in unmanaged indices. Certain statements contained within are forward looking statements including, but not limited to, statements that are predictions of or indicate future events, trends, plans or objectives. Undue reliance should not be placed on such statements because, by their nature, they are subject to known and unknown risks and uncertainties. Please consult your adviser for further information.
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