Some clients have expressed concerns about the possible outcome of the upcoming election and I thought I would share some general comments that may be useful.

It’s important to realize that the market continuously places odds on who will win and what that economic effect may be. You can only outperform if either, 1) your projection of the winner or 2) your analysis of the policy results from that win, is superior to the collective wisdom of all market participants. The market also prices, in advance, the economic results of any foreseeable uncertainty in the transition (which many seem to be fearing).

Therefore, if the market is already predicting (pricing in) a candidate X win and expecting Y policies from that win, then upon election there would be no change in the market. And if the policies ended up being better than expected (not as bad as what was feared) the market could actually perform well. It’s all about the expectations, not the winner.

It’s an elusive point (even for many investment professionals): If market participants (who are mostly professional investors) believe that candidate X is likely to win and that would be bad for investments, then the market would already be down!

If we take a moment to look at what has historically, stocks have done well under both political parties:


Source: JP Morgan Asset Management


While the fate of taxes after the election is also uncertain, stocks have risen 11 out of the 13 historical tax hikes since 1950:


Source: Fidelity


This is not meant to draw any conclusion that tax policies can have on markets in the short term. There are many factors to consider, often tax increases are accompanied by additional stimulus such as defense spending and expanded government social programs that can offset the tax implications.

Emotionally, I agree with many of you that this seems like a fraught time to invest, but I know enough history, data, etc. to know not to act on our feelings. We don’t market-time for precisely those reasons. Keep in mind that if we all feel this way, so do lots of other people, so not only may the market have priced those feelings, it may have done so too much (fear may be keeping markets from going higher). I believe the best thing to focus on all the planning we have done is to plan for exactly this, uncertainty. That is prudent, but often very hard to do. Remember, you generally get paid for discomfort which is why stocks, on average, outperform most other investments.