The US Election- Presidents Change, Markets Remain
Another four years have flown by, and here we are again, Another US election has been decided and Donald Trump has secured a historic win. He is only the second president to win back the White House after losing a presidential record, the last time was in 1892.
The U.S. president is often considered one of the world’s most powerful figures, wielding substantial influence over the world’s largest economy and quite probably its most formidable military, albeit limited by a system of checks and balances through Congress. Perhaps it is understandable that the media, politicians, celebrities and business owners alike wish to make their voice heard during campaign season… it is noisy time of year!
Former President Donald Trump has secured a second term for the Republicans, and looks likely to also win the popular vote, a feat he didn’t even achieve in 2016. The outgoing Vice President Kamala Harris’ hopes to make history as the first female president have been dashed.
It has been a roller coaster, what with President Biden’s withdrawal from the race, two failed assassination attempts, Elon Musk coming in to bat for Trump and Taylor Swift for Harris, and the usual fierce partisanship from both sides.
For investors, it is natural at times of political uncertainty to wonder whether they ought to act, perhaps altering their portfolio, or to move money into cash deposits until things ‘settle down’. Some choose to invest this way, mostly at their peril, as very few managers possess the ability to consistently predict such events[1].
A better strategy, as is adopted in our client’s portfolios, is to outsource this guesswork to the market itself, relying on the millions of daily participants to come up with their expectations and reflect them in prices. Thankfully, given both democrats and republicans support capitalism and believe in personal freedom and property rights, this strategy is a tried and tested approach to investing.
The chart below shows the global equity market return over the last century or so, where the colours represent whether the sitting US president was Republican (red) or Democratic (blue) at the time. There is little to draw from the red and blue sections, both parties have presided over some fantastic periods, and some not so fantastic ones. However, the ability of capitalism to create wealth despite the ups and downs is evident, with $1 invested in 1926 becoming nearly $10,000 by 2024.
Figure 1: Democratic (blue) and Republican (red) Presidents and equity market returns
The challenge is that it is not enough to know what the outcome of this election will be, one also needs to know – without the benefit of hindsight – how the market will react once the event occurs. Will a Trump victory be good or bad for markets? Answering these questions is akin to guesswork, especially given Trump’s track record of unpredictability, despite what some of the financial press might have us believe.
Whilst guessing against randomness is impossible, taking on the known risk that equity returns are far less certain than holding cash rewards investors who ignore this short-term noise and focus on the long-term. The choice of the US President is important to some, but to the long-term investor it is largely irrelevant.
“He who lives by the crystal ball will eat shattered glass.”
– Ray Dalio, CIO of Bridgewater Associates
Risk Warnings
This article is distributed for educational purposes for UK residents. It should not be considered investment advice, an offer of any security for sale nor a recommendation of any particular security, strategy, platform or investment product. This article contains the opinions of the author but not necessarily the Firm. Information contained herein has been obtained from sources believed to be reliable but is not guaranteed.
Past performance is not indicative of future results and no representation is made that the stated results will be replicated.
[1] Albion GAMETM 24.5 – 90% of US equity fund managers were beaten by the MSCI USA IMI Index 20Y to Jun-24.
[2] https://smartersuccess.net/indices
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