We hope this newsletter finds everyone safe and comfortable after this awful hurricane season in the Southeast. Our offices experienced outages, and the parking lot was a complete mess, but we were very lucky in our neck of the woods. We were glad we had just put a new roof on our old building.
Today’s article is regarding how an election might affect your portfolios. Let us know if you have any questions.
To your Prosperity!
Aaron Wade, Kasey Claytor, Dawn Lopez & Kelsey Bartholomew
How Much Do Elections Affect the Stock Market?
| With the election just weeks away, you’ve probably seen some pretty dramatic predictions about what will happen to the economy if one side or the other wins. While the outcome of this particular election is hard to predict (not just nationally but also for state and local offices), economists have identified some market behavior that’s sure to occur. Just the fact that we’re having an election tends to increase uncertainty. Investors don’t like uncertainty. And so it tends to make them react more strongly to market information. “In the absence of a clear consensus about the (election) outcome,” writes economist Clive Walker, “we see larger daily price changes that seem to offset each other.”1 In other words, we might see bigger swings both up and down, but in the long run, stock prices will likely remain largely unchanged. Businesses also don’t like uncertainty. One study found that U.S. firms tend to reduce investment expenditures during election years, which can depress the market. On the other hand, older research suggests that politicians often attempt to boost the economy before elections. So again, a significant long-term effect seems unlikely to occur, much less persist for any meaningful time period. Uncertainty can continue after the election as everyone waits to see what new policies the winners will enact. These changes are most likely to affect industries that are sensitive to government spending, including sectors like healthcare, defense, and finance. Additionally, new tax policies will also have some effect. While politicians may promise a chicken in every pot and a new car in every garage, the economy is just too complex, and economic cycles are simply too long to guarantee immediate prosperity. However, economic promises resonate strongly with voters, so politicians are not going to stop making them. Knowing this, the prudent investor won’t be overly optimistic or overly worried about how the election will affect his or her portfolio. They will expect to see increased volatility, especially when the national race is so closely contested. They will expect the market to overreact in the short term while investors wait for the dust to settle. Elections are important. As free citizens, we have both the privilege and responsibility to vote. So, we encourage you to get out your voter’s guide and make your best-informed decision about who should be in charge of our local, state, and national governments. |
| Sources:1. http://go.pardot.com/e/91522/ctions-affect-the-stock-market/95p293/2481654251/h/S_rYvpDvTgMO47sOFIYrbtW1oJmFqALaz5WkCeWhXlM Disclosure:The views expressed herein are exclusively those of Efficient Advisors, LLC (‘EA’), and are not meant as investment advice and are subject to change. All charts and graphs are presented for informational and analytical purposes only. No chart or graph is intended to be used as a guide to investing. EA portfolios may contain specific securities that have been mentioned herein. EA makes no claim as to the suitability of these securities. Past performance is not a guarantee of future performance. Information contained herein is derived from sources we believe to be reliable, however, we do not represent that this information is complete or accurate and it should not be relied upon as such. All opinions expressed herein are subject to change without notice. This information is prepared for general information only. It does not have regard to the specific investment objectives, financial situation and the particular needs of any specific person who may receive this report. You should seek financial advice regarding the appropriateness of investing in any security or investment strategy discussed or recommended in this report and should understand that statements regarding future prospects may not be realized. You should note that security values may fluctuate and that each security’s price or value may rise or fall. Accordingly, investors may receive back less than originally invested. Investing in any security involves certain systematic risks including, but not limited to, market risk, interest-rate risk, inflation risk, and event risk. These risks are in addition to any unsystematic risks associated with particular investment styles or strategies. |