By: Reed C. Fraasa, CFP®, AIF®, RLP®
Tom Kean, former Governor of New Jersey, is known for saying in commercials. New Jersey and you, perfect together. When it comes to politics and your portfolio, they are imperfect together.
The United States stands out among other nations due to the extraordinary length of its presidential election cycle. Unlike many countries, which tend to have shorter election campaigns, the American electoral process has averaged about 580 days. For example, the United Kingdom's average election cycle is about 140 days. Mexico's is 147 days by law, and Canada's is typically about 70 to 90 days. Many countries, including Brazil, the United Kingdom, and Japan, do not permit candidates to purchase ads on television. Wouldn't that be nice!
This extended timeline in the United States captivates public attention and drives emotions with negative ads and speeches. We are now seventeen months away from the election and are knee-deep in politics. As we move through this election cycle, we may be tempted to think politics will impact our investments. Still, the stock market remains unperturbed mainly by the political landscape.
While the US presidential election cycle may be a time of intense political drama and uncertainty, the stock market exhibits remarkable resilience. Historically, market trends have shown that the stock market's response to political events and election cycles is relatively muted. Despite political rhetoric, campaign promises, and potential policy changes, the stock market typically remains unaffected or experiences minimal short-term fluctuations.
One reason for the stock market's indifference to political events is its focus on broader economic and corporate factors. The market prioritizes fundamentals such as economic growth, interest rates, corporate earnings, and global economic conditions. These factors often have a more significant impact on market performance than the specific policies of any given administration. Consequently, the stock market's reaction to political developments is usually short-lived, as it quickly reverts to evaluating the underlying economic indicators.
The prolonged US presidential election cycle is a unique characteristic of American democracy, allowing for in-depth scrutiny of candidates and their policies. However, it is interesting that the stock market tends to remain detached from the political drama, responding more to economic fundamentals and corporate performance. If you need to do something with your money because you are concerned about any perceived direction of the political climate, please contact our advisors to discuss your concerns.
Reed C. Fraasa is a CERTIFIED FINANCIAL PLANNER™ and founder of HIGHLAND Financial Advisors, a Fee-Only financial planning firm that offers comprehensive financial planning, retirement planning, and investment management. Reed has 30 years of experience as a fiduciary advisor and is the author of The Person is the Plan®, a unique financial planning process. Reed was a frequent guest contributor on PBS Nightly Business Report and has been featured in the New York Times, Wall Street Journal, and Star Ledger newspapers.