How to Watch the Market In Uncertain Election Times

The following is a guest post from Benjamin Lupu, a Certified Financial Planner and founder of Kensington AMI, an asset-management firm in California. He has 36 years experience as an investment advisor, and his primary expertise is dividend and income investment and total return methodology.

With the presidential election dominating the news cycles, many investors may be keeping an eye on the stock market as well as the voting booth as they wonder what impact the election of Hillary Clinton or Donald Trump could have on their portfolios.

Presidential elections are almost always a big part of the greater theme of markets, but in this case even more so.

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It’s important to understand that how voters weigh their Election Day choices and how the market views the candidates aren’t necessarily the same thing.

As hard as it might be, investors should lay aside any personal political leanings as they assess what factors might keep the market humming and what factors might upset the market – and affect their investments in the process.

From an investment standpoint, this isn’t about being for one candidate or the other. It’s a matter of trying to gauge what the markets might do depending on different scenarios, and trying to plan and respond accordingly.

Key Factors

The Clinton Impact. Whatever opinion people may have of Clinton, she represents status quo, continuity and predictability, which markets prefer. Markets in general have been buoyant in recent months as a decisive win for Clinton had been the consensus expectation and has been priced into the markets. Those expectations could change quickly, though, and investors would need to consider adjustments if they do. Harsh reality may have something to say about this before the process is over, and any reversal in the polls can greatly upset markets.

The Trump Impact. Trump is extremely popular with his populist base in the U.S., and some people would consider a Trump victory good for business. The wild card, though, is that he’s immensely unpopular in much of the rest of the world. If the race is seen as close, or if Trump is considered to have a strong chance of winning, global markets could react negatively, at least initially. If the odds of a Trump win appear to be improving, it might be a good idea for investors to reduce exposure, stay partially in cash and see what transpires.

A General Approach. Financial security in the U.S. has traditionally come from three things: sound, long-term process; clear, unemotional thinking; and American optimism. I like to say keep it clean, be disciplined and have faith in the future. In this case, that means be aware of market expectations, follow what happens, but stay focused and make prudent decisions based on facts and not emotions – or personal political preferences.

Wall Street - Prisma Mosaic

Final Thoughts

In any other presidential election year I wouldn’t advocate keeping such a close watch on who’s ahead in the polls and the implications behind the poll numbers. But Clinton vs. Trump is far from the typical race.

Blogger-in-Chief here at RetirementSavvy and author of Sin City Greed, Cream City Hustle and RENDEZVOUS WITH RETIREMENT: A Guide to Getting Fiscally Fit.

8 Comments

  1. I like “General Approach” the best, especially if your retirement is more than a decade away.

    A market downturn regardless of who is voted in is always an opportunity to invest into the market index for better returns.

    –Michael

    • Indeed. Anyone who develops and wisely works a long-term plan will have success.

  2. Nice reminder to use your brain and not be swayed by your emotions. Frankly, I have an uneasy feeling about our immediate future regardless of who wins in November. The market appears (at least to this untutored eye) to be over-valued. And I think too much of our economy is been held aloft by debt, both public and private. My guess is that we’ll have a 15-20 percent correction within a year or two. I hope I’m wrong, but I’m not taking any chances. Mrs. Groovy and I are going into retirement with a 40/60 asset allocation between equities and bonds. I think this will be enough to mitigate the damage. But only time will tell, of course. Thank you Benjamin for your cogent post.

  3. Great post that got me thinking about something I haven’t considered! I’ve never been active in the markets when election periods happened so this will be an interesting effect that it will have on my portfolio that I’m going to be monitoring. I’m going to view it as a black swan event and still just hope for the average 7-8% return that’s prevalent in the markets.

  4. I definitely agree that Clinton vs. Trump is different than the typical election. But in my experience, there is always something to be uncertain about (Greece, China, Brexit). So as they say, time in the market is better than timing the market. Thanks again and have a great weekend!

    • No doubt there is always something that has the potential to rock the market and as you note, having the discipline to save and invest – being in the market – is the single most important factor.

      Thanks for stopped my friend, and sharing your thoughts.

  5. Interesting post! For someone who focuses on decision-making the line “but stay focused and make prudent decisions based on facts and not emotions – or personal political preferences” is important. This is clearly a “head and not heart” time folks – a quantitative and not qualitative focus. And I’ll be glad when this election is over for sure! Trying to teach kids this election is “normal” is ridiculous. The TV reality show this has become can go away forever.

    • “And I’ll be glad when this election is over for sure … . The TV reality show this has become can go away forever.”

      So very true. I’m less worried about what happens with the stock market and more concerned about the devolution of our politics and its implications.

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