2020 Fourth Quarter Market Outlook
The United States (US) Presidential election being held on Tuesday, November 3, 2020 is being billed as one of the most important Presidential elections in recent memory. How much a Presidential election affects US stock markets in the long run is up for discussion. Many investors are of the opinion it is limited in the long run but does increase volatility in the short run.
In my view the key outcome for any US election is how much power the person in the White House actually holds. What I mean by this is the political party controlling the White House do they also control Congress and the Senate. A political party controlling all three houses in the US government makes it easier for them to pass the legislation that fits their political agenda.
Gridlock is where different political parties control different houses of the US government. As an investor gridlock can be good for investments being that it tends to be much harder to get major legislation approved.
With no major policy changes probable, you create more certainty for investors as to what to expect going forward which is more of the same government and economic policy.
The worst outcome in a US election is an unapparent winner on election day as occurred in the 2000 election of Gore vs Bush. This type of uncertainty tends to be negative for the stock market at least in the short term until a winner is declared. The only way to plan for this is to build a cash reserve in your portfolio, but if you are wrong your rate of return may suffer.
In summary I would not let the upcoming US election dictate what investments to hold except to make sure you are comfortable with the level of risk you have in your portfolio. The upcoming US election may increase stock market volatility but that tends to be only for the short term. As a whole we are quite conservative in our investment strategy and your investments should be able to handle any increase in volatility associated with the US election. As always if you have any questions or comments please feel free to contact me.
Best regards
Bill Achtymichuk