Election Year Politics and Stock Market Forecasts
A recent New York Times article discussed the stock market impact of Joe Biden winning the 2020 presidential election. The article quoted Lori Calvasina, head of US equity strategy at RBC Capital Markets, who said “The market is starting to worry that Trump will not be re-elected. Trump is consistently viewed as a positive for the stock market.” Before you make changes to your portfolio as a result of these predictions, consider the following three points:
- Markets have already priced in the possibility of a Biden presidency.
- Two-step forecasting is difficult.
- Your political beliefs can lead to investing mistakes.
When compared against your overall investment horizon, a single presidential term is relatively brief. A single election cycle barely registers as a blip on the radar. The emotions that come with these events, however, can be expansive, consuming, visceral. Amid everything else that’s going on, we hope to put the campaign season between now and November into some financial perspective, because as the data shows, whoever is in the White House does not preordain doom or boom for stock returns. Stock market performance, when grouped by presidential party, historically has favored a Democrat in office, but it doesn’t tell the whole story (remember, correlation is not causation). In fact, stocks were up the majority of the time, regardless of who was in office. Even so, our political beliefs can color how we see the world around us – whichever party is in power – and so influence our investment decisions, often with less-than-ideal financial results. 
