As history would have it, certain patterns have emerged that since the 1930s, both stock and bond markets have shown more muted performances in the year leading up to elections that they did at other times.
While this might mean that 2019 would have been the perfect time to take advantage of US stocks due to the fact that markets may underperform, it is not too late to catch the wave now. Market watchers have also noted that post-election, stock market returns tend to be slightly lower for the following year, while bonds tend to outperform slightly after the election — regardless of what party takes office.
However, it must be noted that it does matter whether control of the White House changes hands. When a new party comes into power, analysts have found that stock market gains averaged 5 per cent, whereas incumbent presidents or if one party remains in control, returns were slightly higher at 6.5 per cent.
So, should you invest now?
There is never a straightforward answer as to why you should invest now, earlier or later. There are many different variables that can affect stock market performances.
This is mainly due to the fact that different parties — Democrat, Republican or Independent — would have varying ideas of tax, spending and regulatory policies. Knowing the current political climate, where both parties are caught in a tight political gridlock, it may comfort investors to know that it could act as considerable restraint more radical policy changes and proposals from both sides, which inevitably means that markets would be more conservative than normal.
In addition, as Covid-19 cases continue to surge in the US, this would also hamper consumer sentiment, economic recovery and job growth — making it opportune for potential investors to start diversifying or expanding their investment portfolios.
A rule of thumb to keep in mind is that Democratic governments could have a more negative impact on stock prices as they favour wealth distribution, social rights and benefits and business-unfriendly changes that could potentially drive stock prices down.
Is there anything to look out for or read up on?
As always, when it comes to investing in anything, it is important to keep an open mind but also to not lose sight of the big picture. While you should always start with industries that you are passionate about or have an interest in, there are always some fast-moving industries and issues to keep abreast on.
In 2020 and 2021, the healthcare industry is one that has been closely monitored and heavily debated as a result of Covid-19 and the potential for big pharmaceuticals to develop vaccines. With increased volatility during the US presidential elections, the effects on healthcare companies will also depend on the outcome, as a result. For example, with Democrats advocating for fairer healthcare practices, there may be a period of weakness in the healthcare industry that may prove to be fruitful or opportune in the right context. However, this rule also depends on whether Democrats gain majority in both the House and the Senate, in addition to the Presidency, so one can simply monitor to see how the situation plays out prior to making any investment decisions.
What does this mean in the long run?
Does this mean that it’s a good time to enter the market and hold on to shares and bonds in order to weather the rest of the presidency? Not necessarily. Market watchers have expressed market ebullience and positive economic sentiment that are par for the course following a Biden presidency.
Despite the fact that Democrats have a tendency to favour more equitable economic outcomes, all policies enacted will still have to win some bipartisan support. This means that lawmakers who agree to such measures will still need to have some form of business-friendly fiscal stimulus that ultimately ensure your investments grow steadily in the long-run.
Ultimately, it is important to have a brokerage firm that allows you to make wise and sound investment decisions both in the short- and long-term. In addition to keeping abreast with the latest news and international developments, an online mobile brokerage should also allow you the ease and access to make investment decisions in markets like the US.
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