Marc Cuniberti: What an election means for financial markets
Discussions about what will happen to the markets because of the fall presidential elections run the gamut from all out Armageddon to no effect whatsoever. I don’t for one second believe the latter.
In my opinion what happens to the markets will likely happen before the November voting date. Polls will certainly forecast who is in the lead and likely to win but if the Trump election is any indication, a close race will bring up memories of the ”Trump surprise” and it may indeed come down to the wire.
Keep in mind no one can forecast market direction anytime or anywhere, but we can draw on some historical patterns on presidential elections in general.
The Presidential Election Year cycle is a study of market direction based on what year in an election cycle the market is currently in. Since 2020 is an election year, it’s the fourth year of the election cycle. In the year a president begins his first term, that is the first year in the election cycle.
Going back over 50 years, the third year holds the record out of the four year cycle for those wondering. The markets also generally fare well in the fourth year (that would be this year). A 7.5% average increase marks the fourth year cycle. In fact, there was only one instance where the fourth year yielded a negative performance which occurred in 1948.
A democrat being elected in average yields a 5% average loss while a republican newbie yields a 9% return. Again, these are historical averages only and in no way an indication of what will happen whoever wins the race to the White House.
In other concerns surrounding the political arena, the markets seem to not be too concerned with the move to impeach. Rumor has it impeachment is a fast track to a victory for somebody, but who that somebody is remains unclear. Some believe the impeachment machinations will cement a Trump win while others believe it’s the final nail in the election coffin. A vague observation for sure but so goes predicting the markets.
So as the turmoil continues to unfold around the White House, the plot thins and it goes back to really “who knows.” Not much help I know. Keep reading.
The economic impact of an impeachment and the election could go any which way. Which leads us back to investing versus betting on an election or the Presidential Election Cycle theory.
Your best bet would be to not bet on who gets elected and instead continue to follow Modern Portfolio Theory (MPT). This means adequate diversification in your holdings and in my opinion, maintaining some sort of exit strategy if things go south in a big way for whatever reason.
Mr. Cuniberti is an Investment Advisor Representative through Cambridge Investment Research Advisors, Inc., a Registered Investment Advisor. Marc can be contacted at SMC Wealth Management, 164 Maple St #1, Auburn, CA 95603 (530) 559-1214. SMC and Cambridge are not affiliated. His website is http://www.moneymanagementradio.com. California Insurance License # OL34249. No one can predict market movements at anytime. Investing involves risk and you can lose money. Consult a qualified financial professional before making any investment decisions and do your own research before investing.
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