By Daniel Campbell, CFA
What are the main issues that could affect your investment portfolio?
You can expect plenty of discussions around Joe Biden’s handling of the pandemic, the response to Russia’s invasion of Ukraine and our current economic landscape. With the Federal Reserve reiterating its intent for further interest-rate hikes to quell historically high inflation, voters will likely be tuned into how each party plans to handle the precarious position of our economy.
Should you reposition your portfolio to take advantage of the changing
agenda in Washington?
An applicable saying is that there’s nothing new in investing, just investment history we don’t yet know. Before making any changes to your portfolio, consider that history teaches us to expect the president’s party to lose seats during midterm elections. So, we can reasonably assume this expectation is baked into stock prices, and we shouldn’t bank on huge swings if Democrats lose seats in Congress.
Is there any pattern between a change in the control of Congress and
future returns in the market?
On average, we’ve seen positive returns for U.S. stocks during years when Republicans controlled Congress, when Democrats controlled Congress and when Congress was split. Over the last 90 years, elections that led to a change in power in either the House or Senate have been followed by a positive year in the stock market each time. Although headwinds to the growth of U.S. stocks will likely continue over the next few years (like high valuations, rising cost of debt and tighter budgets for consumers), the impact of a change in control of Congress isn’t high on that list.
So, what should you do with your portfolio?
Stick to your plan. Everyone wants to see their portfolio grow, but most investors fail not during times of growth, but by panic selling when their portfolio starts to decline. If you are concerned about the volatility in stocks or the higher cost of living, speak with your advisor about investment strategies that can help mitigate these risks. Your portfolio may already be positioned to address them. But evidence shows that trying to guess what the stock market will do before and after elections is not an optimal strategy.
Hypothetical Growth of $1,000 Through Control of Congress100 1,000 10,000 100,000 1,000,000 10,000,000
1934 1943 1953 1963 1972 1982 1992 2001 2011 2021 Your
Portfolio And Midterm Elections: Democrat Republican Mixed