Every four years, investors dwell on the presidential election and how it will affect their investments. The Republican and Democratic hopefuls dominate the screens of our televisions, smart phones and social media news feed — So, of course, it’s fair that investors ask the question: How will the 2016 election affect my investments?
1. Consumer Confidence
Let’s start off by stating the obvious — markets do not like uncertainty. Given political factors, it may be time for some portfolio adjustments. A tactical shift into quality bonds and cash will provide the downside protection needed, rather than flirting with high-risk equity positions. In order to meet your financial needs, seek to diversify your portfolio and maintain various avenues of liquidity.
2. Business Cycle
It’s difficult to determine what impacts the new POTUS will have on markets. Whether you’re pulling for a Democratic or Republican candidate — the fact is that neither of the two parties have a significant affect on market returns. Republicans, more notably, are considered to be more business-friendly. This does not mean your portfolio will thrive.
Since 1900, according to Bloomberg, the Dow has seen an average annual return of +9% with a Democratic President in office and a +6% average annual return with a Republican in office, respectively. That is with a notable exception of 2008 and its -38% returns. Nevertheless, to make good use of time, investors should keep an eye on the potential candidates’ tax policies.
3. Interest Rates
Whether you side with the left or the right, all investors should remain “independent” in terms of interest rate outlook. The Federal Reserve remains in control of interest rates, so we’ll continue to look to the Fed for direction.
In any event, investors shouldn’t fear interest rate increases — past rate hike cycles have proven well for the markets. “Rising Rates Shouldn’t End This Bull Market” says Bob Doll, Chief Investment Strategist at Nuveen Asset Management. “Many investors,” Doll wrote, “believe that when rates rise, the party is over for stock prices. Historically, however, this has not been the case.”
Historical data from the past six rate-tightening cycles yields two of the six rate hike cycles with stocks lower a year after the initial rate hike. The average gain for the S&P 500 in all six cycles was 2.6%, and two years after hike No. 1 the market was 14.4% higher, Doll’s data will show.
Bottom Line:
VOTE.
From an investment standpoint, the future POTUS to enter office is less than crucial. Remain focused on your financial agenda and remember that #WeveGotYouManaged.