Will Political Changes Affect the Economy?

Will Political Changes Affect the Economy?

| September 15, 2020
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2020 has been a year for the record books. Life has been turned on its head and our concerns have been centered on the moment vs. longer term. The general election that is quickly approaching adds to this environment of uncertainty, economic stress, and overall worry. Many states will be selecting governors, representatives, and senators, while the country itself will be voting to either give the Republican mandate another four years or to seek change by handing the Democrats another turn in the White House.

These elections often breed uncertainty or anxiety about the financial markets and other investment matters as some of our personal political beliefs may be informed by the global economic viewpoint. It is natural that presidential elections are perceived as potential turning points for the economy.

Now is when we need to remember that while the White House has enormous influence on economic policy, ambitious policy changes, new programs or tax reform, these topics frequently find challenges in the legislative and judicial branches. It is also important to keep in mind that in the wake of COVID-19 there are other factors that may currently influence the financial markets.1

Historically, it is a distinct rarity that any one event has any lasting impact to the world of investing. Over the last 120 years, the long-term performance of the market has shown almost no correlation with government policies. I have shared for decades, that the key drivers of stock market performance have been corporate earnings and overall economic growth. Generally speaking, “staying the course,” assuming that your portfolio is well-diversified and managed in accordance with your risk tolerance, has made the most sense for investors. 

Among the biggest fears to investors is a radical change to our economic structure by a progressive Presidential candidate. Our system of checks and balances requires a control of Congress and a majority vote to pass legislation. For all the focus placed on the executive branch of government relative to market performance, the consensus seems to agree on the fact that monetary policy matters more. The adage of “don’t fight the Fed” seems to hold true!

Another interesting fact is that some of the best returns in the market came when the presidential approval rating was in the low range of between 36 and 50%. Investors don’t have to love what is going on in Washington, DC to prosper in the markets. While the drama of a presidential election may make one’s imagination run wild, ultimately it is governmental policies and their effects on domestic and global economies that have a greater impact. Personally, I feel that no one really works hard to get a job that they mishandle to the point of losing a reelection or being removed from office.

As your financial advisors we have helped you craft an investment strategy that is designed to run the gamut of time and sustain your needs through a variety of political and economic changes. Naturally, you may have questions about how these policies might affect things in the short term and we are here to answer your questions and address concerns. If you would like to speak further on this topic or any other, please call us at 610-627-5920 or email at allstaff@rzwealth.com. 

1. NYTimes.com, July 29, 2020

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