With the presidential elections less than two months away, we hear a lot about how the results are likely to affect the stock market. Some believe a Biden win will sink the stock market due to his commitment to higher individual and corporate income tax rates and more regulations. Others believe a Trump win cause the stock market to soar based on a continuation of the lower income tax rates and deregulation. What is most likely to happen is something much more muted based on three possible scenarios. Since 1950, the median return when Republicans controlled the government was 13.4%. When Democrats control the government, the median return has been 10.7%. And a split-controlled government yielded returns of 17.2%.
Emotions tend to run high in the months and weeks leading up to a presidential election, and this year is certainly no exception.
What is my best move?
Place your emotions in check and take a rational review of your portfolio by assuming that stocks are not likely to gyrate wildly based on the presidential outcome. There may be other reasons to make adjustments in your portfolio such as tax-loss harvesting and regular rebalancing but avoid making big bets based on your guess or who will win the election.
Follow The Welch Group every Tuesday morning on WBRC Fox 6 for the money Tuesday segment.
FOX 6 TALKING POINTS
Presidential Election: What Will Happen to the Stock Market?
- 3 Scenarios: Democratic sweep; Republican sweep; split government
- History: Republican sweep- S&P 500 median return of 13.4%
- History: Democratic sweep- S&P 500 median return of 10.7%
- History: Split government- S&P 500 median return of 17.2
(Source: LPL Research, Bloomberg 8/27/20. Data from 1950-2019)
Bottom Line: Avoid big stock market bet based on your view of who will win the presidential election.
Stewart H. Welch, III, CFP, AEP, is the founder of THE WELCH GROUP, LLC, which specializes in providing fee-only investment management and financial advice to families throughout the United States. He is the author or co-author of six books, including J.K. Lasser’s New Rules for Estate, Retirement and Tax Planning- 6th Edition (John Wiley & Sons, Inc.); THINK Like a Self-Made Millionaire; and 100 Tips for Creating a Champagne Retirement on a Shoestring Budget.
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