What You Should Know About the Stock Market’s Response to The Election

Many predicted the nation would not receive certain results on election night. They were correct. The outcome of the presidential election, closer than most had predicted, appears to be headed for recounts and lawsuits. Current probabilities show Joe Biden, with the lead for President over Donald Trump. It appears the Republicans may hold onto Senate control (with the Democrats holding onto the House) creating a “gridlock” scenario.

HOW HAS THE STOCK MARKET RESPONDED TO WHAT WE KNOW?

Positive, despite the uncertainty. Although September and October featured dips in the market, the market has been strongly positive in the days leading up the election and today, the day after the election. This is a good sign for investors primarily because the market is not swinging based on changing outcome probabilities (so far).

WHAT COULD YOU SEE IN A “GRIDLOCKED” FEDERAL GOVERNMENT?

A gridlocked government would seem to make it more challenging for Biden to pass tax increases and a very large stimulus bill. Taxes remaining lower should be a positive for the market. Regarding stimulus (generally a positive to the market), both parties have been in favor of stimulating the economy. However, negotiations could now take longer, or stimulus amounts could be lower than previously discussed and proposed.

WHAT DO YOU DO?

Have a plan that takes all the above for what it is, speculation. The media generally wants to assign reasons for the market’s ups and downs – even on a daily basis. Successful investors prepare for multiple scenarios and understand the uncertainty that always underlies stock market direction. It is why we meet with you often – to review your financial situation, make adjustments, and take action to prepare for what’s ahead. The picture below shows that long-term investors have the opportunity, based on their investing behavior, to be successful regardless of which party is in office.

 

As always, if you have any questions regarding your personal investment plan and how it aligns with your personal financial priorities, please do not hesitate to contact us.

Sincerely,

One Degree Advisors