While the worldwide pandemic has taken center stage thus far in 2020, the national election this November may temporarily steal the spotlight. As the countdown to November 3rd begins, we have already begun to see unprecedented volatility buying. In the third week of August, both the S&P 500 and the Nasdaq set record-highs, ending the shortest Bear market in history.[i] But the beginning of September brought a sharp sell-off that has economists shrugging and blaming typical election-year volatility.[ii]
Of course, some of August’s propulsion into the equities market can be attributed to Fed’s fiscal policy shift that sent bond prices plummeting and has investors believing that interest rates will stay low for the foreseeable future[iii]—or at least until the economy has recovered. But what typically concerns investors in the months leading up to an election is how a possible change in the power structure will (or won’t) affect the market. And given the highly controversial nature of this year’s election, what will happen if there is a contested result?
The best precedent for this result is the 2000 election of Bush versus Gore where Florida’s mail-in ballots and hanging chads caused a national upheaval about the state’s popular vote result. Fewer than 600 votes separated the two candidates in Florida, which per Florida law, meant a statewide machine recount must be done. The recount and final Supreme Court decision delayed Gore’s concession for six weeks after Election Day.[iv] As reported by Business Insider, “The stock market initially slipped on the unprecedented result. The DJI tumbled more than 5% in the first two weeks after election day.” Of course, this activity wasn’t a surprise to anyone. Markets abhor uncertainty and tend to react negatively to the unknown.
So what can we expect in the midst of a global pandemic and a contested result? What if the resolution takes more than 6 weeks to reach? Most importantly, what can investors do to hedge against this election-related volatility?
As this year’s market has been largely swayed by the Coronavirus, it may be hard to truly separate which external factor—the virus or the election—is in the driver’s seat until a specific event occurs that is followed by sudden movement. Events could include hard speculations about election results, a severe improvement or worsening of the pandemic, and of course, the results themselves. For example, on election night in 2016, Trump’s unexpected victory incurred a massive upswing in the market, gold, and the Mexican peso.[v]
But, as is always good to remember, past performance cannot predict future results. No one can. What we can look to, though, is this trend and prepare for some rocky months ahead. We recommend you speak with your trusted financial professional about strategies for your investments in times of volatility.
At URS Advisory, we specialize in helping individuals and families prepare for retirement, which includes managing assets against volatile situations. If you have questions about your own portfolio or would like a second opinion, schedule a conversation with us today. We’d be happy to meet you and discuss your short and long-term financial goals.