How Will Political Changes Affect the Economy?

With all of the storm and stress of the year 2020, you’d be forgiven if you momentarily forgot that we’re due for another national election in November.

Many states will be selecting governors, representatives, and senators, while the country itself will be voting in the presidential election.

However, now that the major party presidential tickets have been solidified, we will likely be hearing more and more political discussion in the coming months.

How are you feeling these days?

Even though these elections happen every four years, they often breed uncertainty or anxiety about the financial markets and other investment matters. Some of your personal political beliefs may be informed by our economic worldview. For that reason, it is natural that presidential elections are seen as potential turning points for the economy.

We know that there are three possible outcomes from the upcoming election: a Republican president with a split House/Senate, a Democrat president with a split House/Senate, or a full sweep by either party. However, it’s important to keep in mind that while the White House has enormous influence on economic policy, ambitious policies frequently find challenges in the legislative and judicial branches.

It’s also important to keep in mind that in the wake of COVID-19 there are other factors that can influence the financial markets.

Naturally, you may have questions about how these policies might affect things in the short term, and while we are always keeping the political climate in mind when it comes to strategy, our goal is to help our clients weather any changes that could impact their plan, no matter the reason.

What does history tell us about presidential elections?

Generally speaking, the markets perform well in election years.

A 2019 Dimensional Funds report shows that from 1928-2016, the market has been positive overall in 19 of the last 23 election years. Of the four that didn’t, 2000 and 2008 are included, where the dot-com crash and beginning of the Great Recession, respectively, drove markets down.

Although election years almost always provide positive returns, determining which party is better for investments will never be 100% accurate.

The reality is that no president operates in a vacuum, or controls market behavior. An incredibly complex mix of geopolitical and economic forces combine to affect market performance during each president’s term. Ultimately, no one can predict how an individual election will affect the economy. But no president is able to single-handedly drive or destroy the economy.

No matter what happens on November 3rd, we are all part of an interconnected global marketplace, where many factors beyond the American president determine what the future holds.

So, what can you do?

  • Tune out noise from the media.
  • Keep a long-term view.
  • Call us when you want to talk.

Ultimately, nothing lasts forever — and the climate surrounding our presidential election will soon fade.

Please remember that different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product made reference to directly or indirectly in this content, will be profitable, equal any corresponding indicated historical performance level(s), or be suitable for you or your portfolio. Due to various factors, including changing market conditions, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this newsletter (article) serves as the receipt of, or as a substitute for, personalized investment advice from Searcy Financial Services, Inc.

The content of this letter does not constitute a tax or legal opinion. Always consult with a competent professional service provider for advice on tax or legal matters specific to your situation. To the extent that a reader has any questions regarding the applicability of any specific issue discussed in this content, he/she is encouraged to consult with the professional advisor of his/her choosing.  

Published for the blog on August 28, 2020 by Searcy Financial Services, your Overland Park, Kansas Fee-Only Financial Planner and Investment Manager.