Midterm elections spur uncertainty in markets

Voters file into the polls as early voting begins at the National Service Center in Columbus, Georgia, on October 17, 2022.

Cheney Orr | Reuters

Investment advisors say it’s unwise to try to time the market, but it makes sense to adjust your portfolio from time to time. So, now that the mid-term elections are in full swing, does it make sense to make these adjustments now?

Probably not, say most financial advisors.

“Investing based on political beliefs or what you think might happen politically is an emotional decision, and emotional investment decisions are often not going well,” said Shaun Melby, founder of Nashville, Tennessee-based Melby Wealth Management. .

He points to the Point Bridge America First ETF, which trades under the symbol MAGA and is marketed as a way to invest in companies that align with Republican beliefs. From its inception on September 7, 2017 through election night on November 3, 2020, MAGA returned 6.85%, while the S&P 500 ETF SPY returned 36.10% at that time, according to Tradeweb.

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The impact of the election, the political results are targeted

There is also uncertainty about the results. Although polls suggest that the Democrats may lose control of Congress, the election is not an election. And even if you’ve predicted the election results, you might be wrong about the implications.

“Like many market movements, you can be 100% right about the timing or outcome, but wrong about the impact on the stock market,” said Kevin J. Brady, CFP and Vice President of Wealthspire. Advisors in New York. “Being the political party in power is not so important as there are more predictable results.”

Political outcomes are also moving targets, which makes it difficult to invest based on what you think might happen.

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“Policy is difficult to set, so you generally have a good chance of dealing with any potential policy,” said Taylor Sutherland, a resource consultant with Halbert Hargrove., No. 8 on CNBC’s 2022 FA 100 list.

Democrats are back ahead of the ticket, but it may be too late, former Senator Heitkamp said

“Policies often change until they’re done,” he added, referring to President Joe Biden’s infrastructure bill, which started with a $3 trillion proposal but ended up with $ 1 trillion, with many changes in details.

Financial advisors say it’s best to adjust your portfolio based on your financial goals rather than the outcome of any activity. And it is good to consider the general economic perspective.

Sutherland said his company adjusted its portfolio in late 2021 to early 2022 as economic indicators changed and prices began to heat up. “These signs told us it was time to fight,” he said. “So we sold stocks and funds for a portion of our client’s portfolio, and we’ve maintained that position throughout the year.”

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The market has a ‘very distinct’ pattern between time frames

Historically, stocks tend to do better after the midterm elections. In 17 of the 19 midterm elections held since 1946, stocks have performed better in the six months following the election than in the previous six months.

“If you look at the history of it, the market has a very unique trading pattern in midterm election years, where the first six to nine months are very negative,” said Philip Orlando, president senior vice president and chief market strategist. at Federated Hermes in Pittsburgh.

The party that controls the White House often loses seats. If we have similar results this year and a divided government, Orlando said the stock market could rally 15% to 20% in the spring. But there will be a period of correction after November 8 and the results and economic outlook will be clearer.

“It could be an interesting time to start picking up high-yield high-growth stocks,” Orlando said.


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