The upcoming election is the most important election of our lifetime, but then that’s been said of every election in my lifetime. With such an important election at hand, why doesn’t the market seem to care?
The simple truth is that the Covid situation has completely overshadowed the election, and is likely to continue to throughout the remainder of the election cycle. The sad truth is that we all know the pandemic is being politicized. What is scary is that we really don’t know which parts.
For the remainder of the cycle, expect the pandemic, and more importantly how governments continue to react to it, to be the primary force driving the markets. Currently we’re seeing markets approaching or exceeding all-time highs, as economic data continues to show an economy healing from the self-inflicted turmoil caused by rolling economic shutdowns.
Barring another large-scale shutdown, we expect the economy to continue to improve. In fact, we expect GDP in the third quarter to be about +15%, a sharp rebound from the -34% experienced in Q2. Q3 GDP will be announced on October 29th, and a turnaround of that magnitude could sway some voters.
And this is where we have some concern. Normally, we would not expect another shutdown, but with schools about to reopen in various forms, and the rampant politization of the pandemic by both sides, we see the potential for a hyperbolic reaction to the almost inevitable case in which a student becomes sick.
Make no mistake: in no way are we downplaying the tragedy of a child’s illness. What we are saying is the potential exists for that tragedy to be hijacked in such a way that results in a call to action by media and political groups to further restrict economic activity in ways grossly disproportionate to the actual risk.
As for the election itself, there are only two scenarios which we think would rattle the markets initially, and those would be that either party sweeps.
We don’t have any proclivity toward one party or the other and, frankly, the market’s don’t much care either. What markets care about is uncertainty, and one-party rule means change.
A Republican sweep seems highly unlikely, but a Democratic sweep would mean increased regulations and increased taxes which means individuals and businesses would have to revamp the plans they have in place.
Gridlock is good and, from an economic perspective, the best possible outcome would likely be a divided Congress, regardless of who wins the White House. With Republicans defending 23 Senate seats, compared to the Democrats’ 12 seats, however, it seems less likely the Senate will remain in Republican hands.
The election is still three months away, and with so much happening on the Covid front, we’d caution against letting the election projections determine your shorter-term investment strategies. Polls are notoriously wrong this far out.
As always, this article contains forward-looking statements, which can change at any moment. Be sure to work closely with your Certified Financial Planner® professional to help ensure that your financial plan and investment strategy remain reflective of your goals, and the current economic landscape.
Stephen Kyne, CFP® is a Partner at Sterling Manor Financial, LLC in Saratoga Springs and Rhinebeck. Securities offered through Cadaret, Grant & Co., Inc. Member FINRA/SIPC. Advisory services offered through Sterling Manor Financial, LLC, or Cadaret, Grant & Co., Inc., SEC registered investment advisors.Sterling Manor Financial and Cadaret, Grant are separate entities. This article contains opinion and forward-looking statements which are subject to change. Consult your investment advisor regarding your own investment needs.