On Monday night, Donald Trump and Hillary Clinton met for a highly anticipated debate. While the debate had its highlights, there are plenty of questions left unanswered. Are we any closer to predicting the next President of the United States of America? How should you trade the markets regardless of either party winning the White House?
Guide To Thriving In Election Year Markets
Every four years, the USA elects a president. Also every four years, investors and pundits try hard to predict how markets will respond to each party taking office. And yes, political parties promote certain values which (in theory) affect the markets. But do the parties’ agendas really influence the markets so much? Here’s what you need to know to trade the markets regardless of which party sits in the oval office.
Sounds crazy, right? Especially when you consider that this post is about politics. Except this post isn’t about politics. It’s about trading. And traders find ways to make money regardless of who’s in power.
Everyone has assumptions about what will happen when a certain candidate/party takes over the White House. In 2008, talking heads were clamoring that Obama would put gunmakers out of business, turn healthcare into charity cases, and put clean energy on a pedestal.
But look at the charts.
Smith & Wesson has dominated the market the past five years. The healthcare sector has outpaced the broad market by more than two points a year under Obama. And as for clean energy, which was expected to thrive under this administration? Well those stocks are down 47% under Obama.
Now, I’m not saying don’t vote. DEFINITELY vote. Add your voice to the rest of the country and be heard! But I am saying leave personal beliefs and opinions out of your trading. Political values have an impact on almost everyone’s investment behavior, in ways you may not even notice. One study found mutual and hedge fund managers who contribute to Democrats tend to own fewer “sin stocks” like alcohol, tobacco, or firearms than Republican-donating managers do.
A study of 60,000 investors done from 1991-2002 found people take greater market risks when their party controls Washington. The same study discovered that investors affiliated with the party out of power tend to grow restless and trade securities more frequently. That impatience causes them to underperform compared with when their party is in charge.
When you’re basing a decision on a political opinion, just consider that the S&P 500 has finished up more than 66% of years since 1926, and during that window of time there have been eight Republican and seven Democrat Presidents.
With the election currently happening let us watch this video from Bloomberg and find out what market history tell us about the election.
Investors have made money under failed administrations and successful ones. They’ve made money during war and during peace. And so can you. Just make sure you’re following news and events rather than opinion, and leave politics out of it.
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