By any measure, the 2020 Election has been historic and, with last night’s uncertain conclusion, appears to be far from over. At this point, there are several outcomes that we can characterize as either likely or still uncertain, although it’s important to note that nothing is final as of the time of this writing. Republicans appear poised to retain control of the Senate and pick up a few new seats in the House. Democrats, however, are expected to retain control of the House, so a continued split Congress appears likely. The outcome of the presidential race is still unsettled and may be headed towards litigation around outstanding mail-in ballots. It should be noted that back in 2000, when it took roughly 35 days to resolve the Bush vs. Gore election, the S&P 500 traded lower by 4.9% and had four days of ±2% moves in the market according to BlackRock. So, we may be in for some volatility the longer this drags on, but of course, every time can be different.
Despite all the unresolved issues, one item looking less likely is tax increases associated with a possible Biden presidency. This is due to Republicans likely retaining control of the Senate. Generally, investors interpret that outcome as a positive when it comes to avoiding the potential impact of corporate and capital gain tax rate increases. On the other hand, a split Congress results in a more mixed picture on the timing and size of the additional stimulus that the market craves. So, there are pros and cons for maintaining a split Congress, but in the current environment the market appears to be comfortable with the gridlock.
In terms of other possible changes stemming from the election, regulation changes are largely an executive function. The President also sets the tone on trade policy, so the direction on those two items await clarity. Either Administration, however, would be likely to remain heavily in favor of low interest rates, which, along with the trajectory of COVID-19 and further stimulus, might be the biggest drivers of the market going forward if Republicans do in fact retain Senate control.
With last night’s inconclusive outcome, many Americans probably woke with a headache this morning. After the dust settles, wounds are licked and post-mortems are written, there are enduring economic and investment principles that will not change, such as the value society places on innovation and the importance of the incentive structures that help drive it.
Over the last few months, we have tirelessly read the conjecture in article after article about the moves one can make in preparation and in response to the election outcome. However, as we process last night and the issues that remain unresolved, we are reminded of the admonition that “it’s tough to make predictions, especially about the future.” Even so, one chart from those various articles did stand out from the noise. It suggests that the highest probability path to achieving successful long-term investing outcomes is to remain invested and not let emotion drive your investment decision making.
How you remain invested and take emotion out of the investment process involves 1) properly matching your risk tolerance to a disciplined and suitable asset allocation 2) focusing on quality assets and strategies that will endure and keep you engaged and 3) simply focusing on patience and time to allow your assets to grow. There are no short-cuts, rooted in skill, that will change this formula for success.
Source: Capital Group
In closing, there will be proactive conversations around the election’s ultimate outcome to be had. We will continue to collaborate with you to optimize your personal financial outcomes, but it is very important to not overreact to the results of this, or any, election when it comes to your long-term investments. As has been wisely stated many times, “The captains may change, but the ship sails on.” We suspect, in the end, this time will be no different.
We look forward to further individual discussions and conversations to ensure your goals and objectives are being achieved and that, when it comes to your wealth and investments, your voice is heard.