November economic commentary: There’s more to watch than just the election

Quick takeaways

  • Markets may react with volatility to any short-term uncertainty in election results. Longer-term policy decisions will depend on the outcome of elections locally, at the state level, and nationally as well.
  • Historically, investors who have stayed the course have earned benefits versus those who react quickly to short-term market swings.
  • Investors should focus on long-term goals and check in with their financial professional to ensure retirement contributions are still on track.

Disputed returns, charges of ineligible voters, and two candidates who couldn’t muster an electoral college advantage: Those headlines sound familiar to present-day Americans paying attention to politics. The reality? They were the news of the day during the presidential election of 1876. One-hundred-fifty years ago, charges of fraud gripped the country, even after Rutherford B. Hayes was installed after a compromise between Democrats and Republicans as the 19th United States President four months after the election.1

While the results of this year’s ballot and the November economic outlook may seem intertwined, history provides instructive lessons on the key ways they are not—especially for individual investors and small businesses. Here’s one: Markets are relatively unflustered, particularly over the long-term, historically rewarding investors with positive results, regardless of what party was in office, over the last 100 years.2

Much is unknown about what the economy will do over the next 30 days, but there are other factors outside the ballot box to keep your eye on.

Every election is important

Most people are laser-focused on the next occupant of the White House, but the reality is local and state results may have more of an impact on short- and long-term policies that affect day-to-day finances. There are hundreds of races at play across the country: 35 U.S. Senate seats,3 every one of the 435 U.S. House seats,4 11 gubernatorial seats,5 86 state legislative chambers,6 and countless local offices.

“A lot depends on the makeup of Congress,” says Lance Schoening, director of policy government relations for Principal®. “For example, if Donald Trump wins a second term, yet control of Congress remains split, that’s a moderating factor for what the President and the GOP may want to accomplish legislatively in the next four years.”

Most people are laser-focused on the next occupant of the White House, but the reality is local and state results may have more of an impact on short- and long-term policies that affect day-to-day finances.

Experts also speculate about the outcome of a Joe Biden win. “There’s a tendency, because there’s so much press afforded to the progressive side of the party, for people to think that if the Democrat wins, the progressive platform will take center stage,” Schoening says. “But when a candidate is in campaign mode, they have to appeal to different spectrums of their party. In practice, winning candidates with a more moderate record tend to come back to the center in their presidential terms. And if Congress remains split, any president, Biden or Trump, will be forced to moderate their legislative agenda.”

Any returning or new administration may address taxes, health care, and retirement contributions, among other policies. As a new Congress is sworn in and state legislatures return to work, those discussions may be worthwhile to include in ongoing financial decisions you make that affect you on an individual level.

A delay may happen, and has happened before

We’ve gotten used to immediate election results, but it’s not always been the case.

In four elections—1876, 1888, 1960, and 2000—intra-party deals, razor-thin margins, and contested results have slowed the results.7 With the fierce competition in 2020, the American public may simply have to wait.

“If you think you’re going to have an answer on November 3, you probably will be disappointed,” says Mark West, national vice president of business solutions for Principal. “Key swing states, tight races, recounts, and other factors could drag this out more than what people would like.”

The delay may be compounded by two factors. First, no one knows how COVID-19 may impact in-person voting, but initial results suggest an outsize increase in absentee and mail-in ballots. Second, each state is responsible for certifying its own results on its own timeline. Arizona can begin tallying absentee or mail ballots 14 days before Election Day; Kentucky must wait until 8 a.m. on Election Day.8

In the short term, the markets may respond to that lack of certainty with volatility.

“This may be one of the most anticipated elections in modern history, coinciding with an unprecedented level of social and economic unease,” says Heather Winston, assistant director of financial advice and planning for Principal. “What’s unique is the fact that you have all of these things occurring at the same time.”

History as a guide to November’s markets

Which brings us back to the economy. When it comes to presidential elections, the reaction of the markets has been more of a shrug than a shock. If history proves helpful, once the markets move past any short-term reaction, long-term fundamentals will weigh more heavily on their trajectory.

Take 2000: In January 2000 both the stock market and the S&P hit a peak for the year before swinging up and down, including through the contested presidential election in November. Why? The tech bubble burst.9 The pattern repeated in 2008, another presidential election year, only this time the bottom occurred in March 2009.10 The cause? The housing market collapse, an event in the works well before the election.

“When you look at the long term and the years following elections, these events don’t tend to have a huge impact on the markets, regardless of who wins,” Winston says.

Still, there’s no denying that people are focused on election results and may be keen to change their investments based on the vote tally. That would be a mistake.

“There’s this nearly universal feeling that the event that’s happening now is going to have potentially significant impacts on investments and hard-earned savings,” says Kevin Hansen, director of retirement solutions business development for Principal.

“People don’t want to make a mistake; that’s all perfectly understandable. But history tells us that you’re far better off focusing on what’s in your control than worrying about who’s going to get elected.”

People don’t want to make a mistake; that’s all perfectly understandable. History tells us that you are far better off focusing on what is in your control than worrying about who is going to get elected.”

Kevin Hansen, director of retirement solutions business development

COVID-19, government funding, and other factors

While the impact of any election-related market swings may be short-lived, the impact of COVID-19 is not.

“All of us have to step back and realize we’re still in a pandemic and it’s changed virtually all aspects of our lives,” Schoening says. “A lot will hinge on the progress we make toward ending this. That will provide stability for the economy to start consistently trending upward.”

Control of the virus is intimately tied to other closely watched economic indicators. A second federal stimulus, designed to give another boost to the economy, will most likely be delayed until after the election. That could lead to a further tightening of business spending, which in turn may lead to more job losses and financial difficulties for American families.

The lame-duck session of Congress between the election and the inauguration will have to contend with a possible government shutdown; legislation has funded the government only through December 11.11

“For the most part, neither party wants to see a shutdown,” Schoening says.

No one is immune to feeling challenged by the current state of affairs in the U.S. “The reality is that your neighbors are feeling the same stress, concerns, and worries, just perhaps in different ways or on different subjects,” Winston says. “This is a good reminder to not overreact in anything you do” including your investments.

Individuals: What you can do

Review your budget so far.

You’ve probably spent and saved differently this year than any other year in memory. Can you adjust your budget for the rest of the year to maintain any good habits, such as contributions to an emergency fund?

Cement, but don’t shortfall, your retirement contributions.

We all like to think we’re great at making decisions in times of volatility, but we’re not, Winston says. “Don’t make changes to what you’re saving unless you’re going to increase it. Continuing to save and invest through a volatile environment may serve you well.”

Focus less on the markets and your emotions.

“Historically, major events can cause us to follow the herd,” Hansen says. “We know that, on average, investors who stay the course have fared much better than those who try to make some market prediction.”

Devote time to thinking about your goals.

That includes short- and long-term. “Five years from now, you can look back and say, ‘I’m glad I made that decision,’” Winston says.

Check in with your financial professional.

They have counseled others through elections and economic uncertainty and can help you slow down and refocus. We can help find one near you.

Small business owners: What you can do

Review the positives.

How did you adjust your business model to pivot to consumer needs, and how can you carry that forward into 2021? Fine tune whatever has worked well to make it work even better, West says. “Focus on the things you can control.”

Address the negatives.

Did you learn about underlying weaknesses in your business, such as a less-than-robust digital presence, that you can revamp?

Refocus and re-imagine where you want your business to be.

For a moment, put your blinders on and ignore any volatility to your business model. What growth goals did you have, and how do you need to revamp those to address the future in 12 months, five years, or a decade?

Don’t adjust your strategy or your investments based solely on November 3.

“Investors shouldn’t allow elections to dictate or drive investment decisions,” Hansen says. Check in with your financial professional, or find one through Principal, to make sure you’re invested according to your risk tolerance and that you’re saving enough to meet your needs and objectives. “Talk to someone who has experience in dealing with event related, potentially emotional decision making.”

1 https://www.history.com/topics/us-presidents/memorable-elections

2 Bloomberg, Principal Global Asset Allocation

3 https://ballotpedia.org/United_States_Senate_elections,_2020

4 https://ballotpedia.org/United_States_House_of_Representatives_elections,_2020

5 https://ballotpedia.org/State_executive_official_elections,_2020

6 https://ballotpedia.org/State_legislative_elections,_2020

7 https://www.smithsonianmag.com/history/rigged-vote-four-us-presidential-elections-contested-results-180961033/

8 https://www.ncsl.org/research/elections-and-campaigns/vopp-table-16-when-absentee-mail-ballot-processing-and-counting-can-begin.aspx

9 https://www.poynter.org/reporting-editing/2015/today-in-media-history-the-dot-com-bubble-burst-in-2000/

10 https://www.cnbc.com/2019/03/04/the-10th-anniversary-of-the-climactic-march-2009-market-bottom-arrives-this-week.html

11 http://www.crfb.org/blogs/upcoming-congressional-fiscal-policy-deadlines

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Asset allocation and diversification do not ensure a profit or protect against a loss.

Past performance does not guarantee future results.

The subject matter in this communication is educational only and provided with the understanding that Principal® is not rendering legal, accounting, investment advice or tax advice. You should consult with appropriate counsel or other professionals on all matters pertaining to legal, tax, investment or accounting obligations and requirements.​

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