8 Things to Know in an Election Year
- Markets HATE uncertainty and when an outcome is in doubt the fear of the unknown is unnerving. Political parties tend to have predictable policies. Tax cuts versus increased spending on social programs or rebuilding the military have different impacts on the economy and therefore are perceived differently by the market.
- Markets are better able to discount politics when a clear winner is apparent. Prediction markets have proven to be good indicators of victors in the past. That price discovery process from all known information shows the statistically odds-on winner.
- The ‘race is getting closer’ narrative is popular among media to help keep public interest. A horserace helps their business of selling ads. Understand that media motivation is money.
- Republicans are viewed as more pro-business, but BIG stock market booms occurred under Bill Clinton and Barack Obama. The perception of Democrats overburdening regulations in those eras did not hold back stock surges.
- The President is not the CEO of the country. He or she does not have absolute power to institute policy and must work with other branches for a functioning government. The constitution intentionally limited the impact of any one person…even the President.
- Down-ballot races are extremely important in determining the makeup of the Senate and House of Representatives. The division of government plays a major role in what bills and laws are actually implemented.
- PREDICTING THE ELECTION EVENT isn’t what pays. The most important thing is how the market reacts. Knowing the winner is not nearly as critical as predicting how the market will behave…
- Markets will survive… and opportunities will continue to exist. History has proven that market resiliency has endured all election outcomes. Our financial institutions are far greater than any single individual that gets elected to run our country.
