The political climate heavily influences the economy’s health, which is why keeping track of both is essential to protecting your investment portfolio. The 2020 election is a particularly volatile situation for a few reasons.
First of all, it’s been one of the closest races we’ve seen in the history of the country. Secondly, it’s a unique situation in which millions of votes had to be mailed in because of the COVID-19 pandemic.
As if all that wasn’t enough, the final nail in the coffin is that the incumbent president hasn’t committed to a peaceful transfer of power. All this uncertainty is bound to make stocks go wild — for better or worse.
The 2020 Presidential Election and The Stock Market
Market Volatility, Industry Downturns, and Unique Growth
There’s perhaps no area of finance more tethered to presidential elections than the stock market. Whenever an election heats up, you’ll likely see a rapid reaction from the market as a whole. The results of the election can also play a big part in which stocks rise or drop.
Key Events Affecting the Stock Market
Stimulus Bill, House Committee, and COVID-19
Obviously, the outcome of the election is a key event that will not only affect the stock market but also economic policy for the years to come. If Trump keeps his presidency, then stocks like Exxon Mobil and Chevron are bound to rise due to his indifference to climate change.
On the flip side, a victory by candidate Joe Biden would likely cause a rise in the shares of NextEra Energy, Tesla, and other companies in the sector as he implements more laws to protect the environment.
However, it’s not only about who wins but in what manner they win. Trump has gone on record saying that he intends to take legal action against Biden rather than conceding defeat. His justification is that votes shouldn’t be counted past election day.
While there’s no historical backing for the concept that tabulation should end at midnight of election day, considering it has never happened, that doesn’t change the fact that Trump isn’t backing down.
An example of this aggressive position is illustrated by the graphic below, representing the “bold” vision that Trump has for the world.
This type of conflict in the executive branch of the country can reduce the faith of investors in the stability of the stock market, leading to selloffs and thus noticeable drops in the share price of some stocks that you may hold in your portfolio.
It’s unclear as to how long this will continue to drag on since the Bush v. Gore dispute took over a month to resolve. The more delayed the result is, the higher the potential for economic unrest both in the market as well as other avenues of investment.
The Next Four Years: An Outlook on Money
What Will The Market Look Like After 2020?
There’s a common belief that Republican presidents are better for the economy as they promote low taxes and avoid interfering with the private sector. Be that as it may, and without getting too partisan, the history books tell a different story.
A study from Princeton found that, on average, the economy actually performs better under Democratic presidents. Of course, past results can’t always predict the future. Every candidate is different, even if they’re from the same party.
That being the case, you shouldn’t be discouraged from investing whether a Republican or Democrat is in the White House.
The rosy reality is that the market grows consistently despite US politics albeit at differing speeds depending on how the sitting president runs the country.
“In the next few years, a likely event will occur: cryptocurrencies are bound to rise in price due to more widespread use. Many citizens are concerned about all the money printing from central banks in response to the pandemic.”
— Bingshan Song, Founder of Zinvest Financial
Crypto is seen as a way to hedge against inflation and the potential devaluation of the dollar. In fact, Swiss banks are launching “stablecoins” that are backed by the Franc (a go-to safe-haven currency for decades.)
There’s also likely to be rises in popular market sectors like tech with every cash injection that the government approves. The stimulus package passed by the US government is largely credited with the rapid recovery of many stocks following their initial crash in March.
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The Effects of the US Presidential Election
How Will US Politics Impact the Global Markets?
Despite the Republican party’s request to halt votes in Pennsylvania following Biden surpassing Trump, the Supreme Court has ensured that tabulation goes on without pause. This suggests that they may similarly rule in the DNC’s favor should things go to trial.
There are a few outcomes that we could see as a result of this year’s election. If things work themselves out far sooner than expected, then there’s the possibility of a temporary dip in the price of cryptocurrencies as volatility will be massively reduced.
The inverse is also quite possible, with prices continuing to rise should legal proceedings continue until the end of the year or possibly even until early 2021. Ultimately, it’s not wise to invest money based on what you think will happen with the election.
If you put all of your cash in so-called Biden stocks, then the SCOTUS rules in Trump’s favor, you could end up with unexpected losses and vice versa.
Instead, continue to diversify your portfolio with 10 or more stocks that are robust enough to survive election turmoil and COVID.
Wrapping It Up
As you can see, there’s no doubt that things are heating up as the votes in the last battleground states are tabulated.
There’s a high likelihood that we’ll need a Supreme Court decision before we get the final word on who the next president of the world’s largest economy will be.
If you want to play it safe, then you could avoid stocks in controversial markets like China as well as those that are vulnerable to environmental policy such as oil.
At the end of the day, nothing has truly changed since it still comes down to your risk tolerance and hunger for reward.
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