Midterm elections spur uncertainty in markets

Voters file into the hall as early voting begins for the midterm elections at the Citizen Service Center in Columbus, Georgia, October 17, 2022.

Cheney Orr Reuters newspaper

Investment advisors say it’s not a good idea to try to time the market, but it makes sense to adjust your portfolio from time to time. So, with the midterm elections now a week away but the outcome still out of focus, 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 decisions when it comes to investing tend not to work very well,” said certified financial planner Shaun Melby, founder of Melby Wealth Management based in Nashville, Tennessee. .

He pointed to the Point Bridge America First ETF fund, which trades under the symbol MAGA and has been 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% over the same time, according to Tradeweb.

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Election impact, political results are moving targets

There is also uncertainty in the outcome. While the poll suggests that Democrats may lose control of Congress, polls are not elections. And even if you predicted the outcome of the vote, you can still end up wrong about its impact.

“Like many market events, you can be 100% right about the timing or the outcome, but you’re wrong about the impact,” says Kevin J. Brady, a CFP and a New York-based vice president at Wealthspire Advisors. the stock market. “It doesn’t really matter what political party is in power so much as there are more predictable results.”

Political outcomes are also a moving target, making it difficult to invest based on what you think might happen.

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“Policies are very difficult to put in place, so you generally have a good amount of time to deal with whatever these policies are,” said Taylor Sutherland, wealth advisor with Halbert Hargrove., ranked number 8 on CNBC’s FA 100 2022 list.

Former Sen. Heitkamp says Democrats will bounce back before the midterms, but it might be too late.

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

Financial advisors say it’s best to adjust your portfolio based on your financial goals and not on the outcome of any event. And it is better to consider the general economic outlook.

Sutherland said his company adjusted the portfolio in late 2021 to early 2022 as economic signals changed and inflation began to heat up. “These signals indicated to us it was time to defend,” he said. “So we traded out of stock and into cash for a portion of our client portfolio, and we’ve maintained that position all year.”

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The market has a ‘very different’ midterms pattern

Historically, stocks tend to do better after midterm elections. In 17 of the 19 midterm elections since 1946, stocks were better in the six months after the election than in the six months before.

“If you look at the history of this, the market has a very different trading model in midterm election years, in which the first six to nine months tend to be very rocky,” said Philip Orlando, senior vice president and strategist equity market in chief. of Pittsburgh-based Federated Hermes.

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

“This could be an exciting time to start picking up some quality oversand growth stocks,” said Orlando.

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