From Debate to Decision Day: Markets and Political Uncertainty
From Debate to Decision Day: Markets and Political Uncertainty
Despite a long day of using my brain (I never realized how much exercising your brain can physically exhaust one), I had a strong need to watch reality TV—to blankly absorb the inconsequential banter of gossip between friends. But then I remembered a different form of reality TV was happening at that moment—Vice President Harris and former President Donald Trump faced off in their first and potentially only presidential debate. So I grabbed my favorite blanket and watched.
Results of the debate aside, as an investor, understanding what has happened in the markets leading up to election day is a good thing to know—no matter your political leaning. We are 57 days away from election day. And, regardless of who becomes president, the ride from here til then may be anything but smooth (and not just owing to the election).
Historically, markets can be volatile in the months and days leading up to the election, but trending results of the candidates have mattered. Volatility has tended to peak in the summer when the incumbent party eventually wins but rise in an election when the opposition party wins. Change, good or bad, is not always welcome.
And, as the chart below illustrates, returns tend to struggle as we get closer to election day, consistent with the seasonality of markets every year, but typically improve after the results are in.
Outside of the short-lived noise from the election, as an investor, we suggest:
focusing on the policies, as these will have the real longer-term economic impact, even though it can take months or even years for policies to fully make their way through the bureaucratic process.
staying focused on the data—specifically the big 3: interest rates, inflation, and growth. Although the slowdown in the labor market has sparked concerns about a potential economic downturn, we believe the economy remains in good shape. Real GDP growth (seasonally adjusted annual rate) for the third quarter of 2024 is currently tracking at 2.5%. Consumer spending is expected to remain strong, even if selective, tracking around 3.5%, and a potential rate cut by the Fed should provide some relief for borrowers.
While the outcome of the election remains uncertain, the key to navigating the coming weeks is focusing on economic fundamentals rather than political headlines. The long-term trajectory will be shaped by policies that impact interest rates, inflation, and growth. By keeping an eye on these drivers, you can position yourself for stability, even in uncertain times—when you’re tired from brain use.