The stock market has spent most of this year clawing its way back from a gut-wrenching drop precipitated by the COVID-19 outbreak and economy-shutdown policies to slow the pandemic. Can it also survive a tumultuous presidential election and a possibly radical reshaping of the economy and pollical landscape?
most stock market watchers seem to think so. Despite modest weakness over the past two weeks, indicators including the Dow Jones Industrial Average and the Standard & the poor’s 500 index remains a stone’s throw from its all-time highs.
the s&p 500, for example, is down 7.7% from its peak reached earlier this year.
“Markets have historically not been particularly affected by which party wins the White House or control of Congress, and that appears to be the case again this year,” said Michael Townsend, Vice President of Legislative and Regulatory Affairs at Charles Schwab. in a recent comment that seems to echo a consensus view.
But Anjelina Belakovskaia, a senior lecturer in finance at the University of Arizona’s Eller College of Management, isn’t so sure. In a bold pre-election forecast, she predicts the stock market will crash if Joe Biden wins the presidency.
possible significant policy changes
In part, his bearish view reflects possible new policies for the economy, taxes, health care, green energy, regulations, etc., plus uncertainty about what all of this might mean.
“If Biden wins, there will be a lot of concerns about how these new policies will affect everything,” said Belakovskaia, who cited anxiety over a shift toward socialism.
“There could be a very strong financial impact,” he added. “The economy of the future is at stake.”
she predicts the stock market could drop at least 5% within days of a biden win and possibly drop 20-35% by the end of the year, which would carry the dow industrial average jones to about 18,000 to 22,000 or so.
Conversely, if Donald Trump wins re-election, Belakovskaia believes the market could rally further, reviving its recent rally and “easily breaking the psychologically significant barrier” of 30,000 for the Dow.
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uncertainty about the electoral results
Some observers also worry about a prolonged period of uncertainty if election results are delayed or called into question. townsend in charles schwab said that a prolonged period of lack of clarity could be more disturbing than who actually emerges as the winner.
Trump has also threatened to delay his departure from the White House if he is defeated, possibly inserting a wild card into a situation that is no longer resolved.
But even these concerns may be unwarranted.
“The surprise may be an orderly election and conclusive results,” John Blank, chief equity strategist at Zacks Investment Research, said in a blog post.
Nearly all recent voter polls, he noted, show that Joe Biden is the same winner, implying that many investors have already factored in this possibility. a quiet election could happen and surprise almost everyone.
what about the senate?
Presidents are often limited in their political agendas if the House of Representatives or the Senate, or both, are controlled by the opposing party. this helps to silence radical changes and is something that investors often appreciate.
but in the current cycle, a democratic sweep is a possibility. Democrats are expected to retain control of the House and could win enough seats to take over the Senate. That could usher in an effective one-party government if Biden also wins the White House.
“a biden victory has the potential to weigh on stock markets in light of higher income and investment taxes, a reversal of the 2017 corporate tax cut, a heavier regulatory burden and more antitrust actions active,” investment/benefit consultant Mercer said in a pre-election report.
Many investors would see all of this as a negative, though the prospect of a larger Covid-19 relief bill under Democrats, totaling perhaps $3 billion, could give the economy a jolt, Mercer added.
belakovskaia, however, takes a different view, arguing that a biden white house might be interested in locking down more parts of the economy to curb the virus, compared to trump, who has bristled at wearing masks and imposing more restrictions on businesses. This is another reason why she believes economic growth could slow under Biden, at least in the short term, with possible negative consequences for the stock market.
what should investors do now?
In terms of equities, investment strategists at schwab are urging long-term investors not to react to daily market moves focused on elections. but they also say it’s a good time to make sure your investment mix is right, and to rebalance if necessary. that might mean taking some profits from assets that have been doing particularly well and investing the gains in laggards.
Mercer also suggests that investors generally shy away from major portfolio actions before elections.
Jeremy Kisner, of Surevest Private Rich in Scottsdale, is also downplaying pre-election anxiety, with the implication that investors shouldn’t make sudden portfolio changes.
“dire predictions by presidents who tanked the economy or the stock market have almost always turned out to be wrong,” kisner wrote in a blog post. why? because life goes on.
“Regardless of who is in the White House, 150 million Americans go to work every day and try to find better, faster and more cost-effective ways to serve their current and potential customers,” he said.
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