There have been countless stories on each candidate, so there’s no point in rehashing those points. However, as an investor, please know that elections can bring market volatility. The difference in policies that a Trump administration or a Biden administration would offer may exacerbate this particular election cycle’s market swings. Here’s what you need to know to keep your investments safe, no matter which candidate leads the polls and ultimately wins!
Will Market Volatility Be High This Year?
Yes, but not in the way you might first think. CNBC recently ran a couple of insightful articles on this subject. The first indicated that market volatility would not be significant for September. Counterintuitively, historical data shows that markets are less volatile during election months than in other years. There’s no evidence (yet) that the months before the election will be any different.
However, the options markets are raising red flags about potential volatility after November 3rd. After that date, we know that there could be quite a bit of likely uncertainty. If it’s a landslide victory for either candidate, expect equities to do a little bit of reshuffling as the candidates have incredibly divergent views on the economy.
If the election is close and contested in any way (as happened with George Bush and Al Gore in 2000), there could be significant jitters on Wall Street. Uncertainty typically breeds volatility, and this cycle would be no different.
Therefore, if you’re concerned about volatility (e.g., you’re getting closer to retirement), you may wish to rebalance your portfolio with safer investments. That way, your balance won’t be subject to significant swings after November 3rd.
It’s Not Just the Equity Markets
When Trump won the 2016 election, the equities market took off. Within a year, the DOW went up approximately 5,000 points. That’s what most people remember, but other significant changes happened, as well. The ten-year Treasury yield went up about 60 basis points after the 2016 election. Mortgage rates went up approximately 0.5% in a month. Additionally, the Fed raised rates from 0.41% on election day to 2.42% in March of 2019, before the rates crashed again.
Some of these are the direct result of the election, and some are byproducts of it. Elections bring about some levels of uncertainty, and all aspects of the economy – not just equities – react to that instability in different ways.
This Year Is Different
On top of the general instability that elections provide, there’s also the compounding issue of COVID-19. Nobody knows when a vaccine will be available. Nobody knows how effective it will be, either. We may see more shutdowns for health reasons, or governors may choose to open the states further. These are all possibilities for the future.
This year could provide a bumpy ride for the markets. Between the election and COVID, expect all markets to react in volatile ways during November and December.
As a financial advisor, I can help you formulate strategies to help insulate your portfolio from some of that volatility. Please get in touch with me today, and let’s see how we can help your portfolio thrive during these upcoming events!
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