Here it comes (actually, we’ve been seeing it for a while), the pontification about which U.S. Presidential candidate will help or hurt the American Economy, and by extension, the U.S. Stock market.
As you might expect, in the world we currently live in, these articles are tinged, if not rife with, political bias. If you are a Republican, then obviously, the Democratic candidate will destroy the economy and ruin your investments, and vice versa. However, some “neutral” economists and financial journalists will write similar articles. So, how do you know the difference?
The reality is that it doesn’t matter as much as everyone likes to pretend.
People love to forget that the U.S. President is not a king. No matter who is elected this November, the reality they inhabit involves a grid locked Congress, among other things. While there is a great deal of power invested in the American President, much of that is policy based. While these decisions will eventually influence the course of American business, such changes will not immediately effect either the economy or the U.S. stock market, both of which are enormous in size and scope. Just like spinning the wheel on a super tanker slowly makes the enormous ship drift in a new direction, so do changes in American economic policy, most of which cannot be described as “spinning the wheel.”
This does NOT mean that the stock market won’t react, and react dramatically, no matter who gets elected. Remember, the stock market reactions are amplified not only by real news, but by people guessing how that news will effect the future, and then by people trying to guess how people will guess about how that will effect the future, all topped off by computer programs methodically trying to exploit whatever bits of programming they have been endowed with.
In other words, investors would do well to ignore the vast line of financial articles on the way about how the Presidential election will affect the stock market. Trust your diversified portfolio, and plan on some volatility both in November, when the election happens, and in January when the new President is inaugurated.