The U.S. presidential election is fast approaching, but it may not have as much an impact on markets as people may think, some investors say. With just a little over two weeks until the election, the race appears to be locked in a “dead heat” between former President Donald Trump and Vice President Kamala Harris, according to the latest national NBC News poll. Trump has recently seen a comeback in the polls, in addition to some recent signs equity markets are pricing in his victory, and possibly even a Republican sweep. Meanwhile, Harris’ popularity has waned somewhat from its heights over the summertime. But many investors are optimistic the bull case for stocks will hold regardless of the election outcome, especially given the major averages’ recent performance. While the Dow Jones Industrial Average and S & P 500 were lower Monday, they were each coming off a six-week winning streak, the best such advance of the year for both benchmarks. The S & P 500 is up about 22% for the year. History suggests the strong performance bodes well for a post-election pop into year’s end. In data going back to 1944, a prematurely strong performance in election years typically meant a “further improvement” in November and December, according to Sam Stovall, chief investment strategist at CFRA Research. “History therefore implies, but does not guarantee, that active managers may put the pedal to the metal in an effort to match or exceed their benchmarks return in the final months of this unusually strong election year,” Stovall said. The strategist noted that an investor “hunger for growth” bodes especially well for communication services, financials and information technology, and less well for consumer staples, materials and energy. Scenarios Part of the reason why investors expect the election will have little impact on equities has to do with what a poor predictor candidates’ policies have been to performance in the past. When Trump was elected in the 2016 presidential election, investors expected energy would perform well — but the subsequent two years proved unfavorable for the sector. Meanwhile, renewable energy, a centerpiece of President Joe Biden’s 2020 campaign, have lagged for the duration of his presidency. The Invesco Solar ETF (TAN) has been down the last four years, including this one. “I think the lesson from that is that investors shouldn’t pay too much attention to politics, and they should really be focused on how industries and companies are changing and where there’s integration,” said Alger CEO Dan Chung. Other market observers echoed similar sentiments. Last week, John Stoltzfus, chief investment strategist at Oppenheimer Asset Management, urged investors “to not read too much into the probability of the election going one way or the other for the Presidency or House or Senate.” Of course, investors weighing the possible election outcomes expect that a Harris victory, with a split Congress, could be a bullish development for equities. A House of Representatives in control of Democrats, with a Senate that is held by Republicans, is unlikely to pass through any bills, particularly when it comes to increases in personal or business taxes. Meanwhile, a scenario in which Trump wins may be welcomed by markets, which have been pricing in a Trump win, but will raise questions around how seriously the former president is in erecting tariffs that can hinder global trade. Risks of delayed results To be sure, one potential concern for investors could depend on how hotly contested the outcome may be, with the possibility of delayed results leading to higher volatility. “We emphasize the likelihood for a delayed election result,” Morgan Stanley Wealth Management’s Monica Guerra wrote this month. “A tight race, as well as mail-in voting and ballot counting fragmentation, raises the possibility of an undetermined election for some time, which may drive heightened volatility/” An election delay could last anywhere from days to weeks, Guerra wrote. After the 2020 election, the firm noted, the Cboe Volatility Index spiked 40% for three days until a winner was decided upon. During the 2000 election, volatility lasted for more than 30 days, through December. “We encourage investors to keep their long-term objectives in mind during periods of uncertainty and position for election related volatility,” Guerra wrote. Still, plenty of investors aren’t waiting for any clarity on the election to start positioning for a bullish end to the year. “I wouldn’t be waiting on the sidelines for clarity on the election or anything else,” said Ross Mayfield, investment strategist at Baird. “I would be leaning into the uncertainty and kind of levering up towards more risk-on types of sectors and assets.”
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