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Election Results Uncertainty and the Market

I'm not so concerned about the effect on the stock market(s) of one person being elected President of the US versus another.  (See https://www.morningstar.com/articles/1000663/presidential-elections-dont-matter-for-investments.)  However, I am very concerned about the effect on the market(s) if the election is close, and the results are contested and/or are not accepted by one of the major parties, and a significant portion of the electorate.  Any thoughts on this?  Is anybody adjusting their allocation in anticipation of this? 

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Re: Election Results Uncertainty and the Market


@OpenMind wrote:

I'm not so concerned about the effect on the stock market(s) of one person being elected President of the US versus another.  (See https://www.morningstar.com/articles/1000663/presidential-elections-dont-matter-for-investments.)  However, I am very concerned about the effect on the market(s) if the election is close, and the results are contested and/or are not accepted by one of the major parties, and a significant portion of the electorate.  Any thoughts on this?  Is anybody adjusting their allocation in anticipation of this? 


I share your concern but feel little confidence in my ability to effect an actionable response, except to reduce my equity allocation by 5-10%. I then rebalance as directed by market action and my risk profile. That has been my most successful response to this craziness since March of this year. Whenever I make a concerted effort to second guess what the market will (should) do, I'm invariably wrong. Good luck.

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Re: Election Results Uncertainty and the Market


@rhythmmethod wrote:

@OpenMind wrote:

I'm not so concerned about the effect on the stock market(s) of one person being elected President of the US versus another.  (See https://www.morningstar.com/articles/1000663/presidential-elections-dont-matter-for-investments.)  However, I am very concerned about the effect on the market(s) if the election is close, and the results are contested and/or are not accepted by one of the major parties, and a significant portion of the electorate.  Any thoughts on this?  Is anybody adjusting their allocation in anticipation of this? 


I share your concern but feel little confidence in my ability to effect an actionable response, except to reduce my equity allocation by 5-10%. I then rebalance as directed by market action and my risk profile. That has been my most successful response to this craziness since March of this year. Whenever I make a concerted effort to second guess what the market will (should) do, I'm invariably wrong. Good luck.


Thanks for the response.  Coincidentally that has pretty much been my system over the years.  I reduce equities by 5% to 10% when I feel like the markets might trend downward for awhile, and conversely may increase equities by a few % after it has trended downward for awhile.  It's mostly a psychological thing for me.   A 5% to 10% change won't make much of a positive or negative difference on returns, but it helps me sleep at night.  Also, limit my changes to twice a year to avoid what I consider too much dabbling. 

I have a definite preference for who wins the election, but I won't get into that here.  Just worry the country and the markets might get pretty shaky if the win isn't decisive no matter who it is.  Have been thinking about whether I should make a more dramatic shift out of equities for awhile.  The fact that I'm semi retired and 62 is effecting my thinking also.  Currently about 56/44 stocks to bonds. 

 

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Re: Election Results Uncertainty and the Market

Pretty much what has been going on for nearly 4 years, except we now have uncontrolled rioting, looting and killing. I doubt much will change in a few months other than maybe being more intense. I don't think many of us are smart enough to "kill a fat hog" in the upcoming months so I will most likely stay invested unless  another black swan comes along. The traders among us may grasp an opportunity if so presented. If you are waiting for after the election you will probably be too late.


@OpenMind wrote:

I'm not so concerned about the effect on the stock market(s) of one person being elected President of the US versus another.  (See https://www.morningstar.com/articles/1000663/presidential-elections-dont-matter-for-investments.)  However, I am very concerned about the effect on the market(s) if the election is close, and the results are contested and/or are not accepted by one of the major parties, and a significant portion of the electorate.  Any thoughts on this?  Is anybody adjusting their allocation in anticipation of this? 


 

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Re: Election Results Uncertainty and the Market

Noted this from what YogiBearBull posted from Barons:  "Delayed or contested elections would be negative for the market. That and high unemployment due to Covid-19 may lead to unrests."  The unrest is what I'm particularly concerned about and how it will effect investments.  I think it could be a lot worse than what we have been seeing so far this year.

Of course, I worried about more than just how it will effect investments, but this isn't the place for discussing that.

 

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Re: Election Results Uncertainty and the Market

I think a close election will unsettle the market a bit.  Mostly because people do not understand how US elections work.  There is tons of misinformation being passed around but the truth is there is no election until the electoral college votes. State legislatures pick the electors. All do it based upon an election but most are winner take all states. 

Things will really go crazy if there is no winner on the first round and the electors are free to vote the way they wish.

I'm absolutely terrible at market timing so I'll do what I always do.  Ride it out.

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Re: Election Results Uncertainty and the Market


@Mustang wrote:

I think a close election will unsettle the market a bit.  Mostly because people do not understand how US elections work.  There is tons of misinformation being passed around but the truth is there is no election until the electoral college votes. State legislatures pick the electors. All do it based upon an election but most are winner take all states. 

Things will really go crazy if there is no winner on the first round and the electors are free to vote the way they wish.

I'm absolutely terrible at market timing so I'll do what I always do.  Ride it out.


Yeah, I'll probably stick to my usual strategy and ride it out too.  I rode out the Great Recession and the crash this year and was glad I did.  

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Re: Election Results Uncertainty and the Market


@OpenMind wrote:

I'm not so concerned about the effect on the stock market(s) of one person being elected President of the US versus another.  (See https://www.morningstar.com/articles/1000663/presidential-elections-dont-matter-for-investments.)  However, I am very concerned about the effect on the market(s) if the election is close, and the results are contested and/or are not accepted by one of the major parties, and a significant portion of the electorate.  Any thoughts on this?  Is anybody adjusting their allocation in anticipation of this? 


 

 IF you currently have the appropriate allocation and do nothing, you will have an appropriate allocation after the election. Trying to forecast what is going to happen in addition to how the markets will react and when is nearly impossible.

Serenity now.

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Re: Election Results Uncertainty and the Market

 

There will be an increase in mail-in ballots due to the coronavirus pandemic.
Consequently, election results may be delayed for weeks.
Unsubstantiated claims regarding voter fraud have laid the groundwork for contesting the outcome.
If this is a close election, there could be widespread civil disorder.
Having said that, I haven't made any portfolio adjustments because of the election.

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Re: Election Results Uncertainty and the Market

Over the long run e.g., 10 years, the 2020 election will have little effect on stocks. What is more important is whether the government elected in the November elections will contribute to the economic recovery or hinder it.

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Re: Election Results Uncertainty and the Market

No, not adjusting allocation to predict the election outcome.  Can’t time the market - definitely the important concept is time in the market.  Have to be comfortable with your risk profile. If not, adjust accordingly.

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Re: Election Results Uncertainty and the Market

Personally, I think the election will be a landslide and stocks will soar. But if it's contested (someone doesn't concede, brings lawsuits, SCOTUS involved, etc.), then there will be one hellova dip to buy on. I would probably go 100% in.

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Re: Election Results Uncertainty and the Market

        Well someone should double check this but as far as I know a presidential term ends on 1/20/2021 no matter what. In the modern era the nuclear codes have to be transferred to someone then. You would think that should, ha, ha, further require a quick solution. One of the duties of the military is to uphold the Constitution to make that all happen, But the great Satan is taking needles from many factions and the Constitution gets shredded a little more over time.

         As far as gaming an unknown I’am never really surprised that remains so prevalent with amateur investors. I never see the professionals invest in that manner. With bank rates probably lower then most personal inflation rates markets are the only option at the present time. Of course the holy grail of allocations remains a myth. 

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Re: Election Results Uncertainty and the Market

OpenMind,

You invest similarly to me. I too allow my emotions to “influence” my allocation at times like this. BUT, I’ve learned to “limit” the influence to around 5-10% of my allocation. That way I don’t shoot myself in the foot.

Most studies show that the “average” investor underperforms the market averages due to trying to “time” the markets, invariably getting out too early or buying at the top of the markets.

Who knows what will happen come November??? Either candidate could win, and the polls have recently tightened a little. I know who I want to win, but won’t get “political” here. If the outcome is contested, that would be bad for the equity markets.

But I don’t think we can “accurately” predict the effects on the markets, and thus changing our allocation is probably a “fools errand”.

Win
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Re: Election Results Uncertainty and the Market


@Win1177 wrote:

OpenMind,

You invest similarly to me. I too allow my emotions to “influence” my allocation at times like this. BUT, I’ve learned to “limit” the influence to around 5-10% of my allocation. That way I don’t shoot myself in the foot.

Most studies show that the “average” investor underperforms the market averages due to trying to “time” the markets, invariably getting out too early or buying at the top of the markets. Who knows what will happen come November??? Either candidate could win, and the polls have recently tightened a little. I know who I want to win, but won’t get “political” here. If the outcome is contested, that would be bad for the equity markets.

But I don’t think we can “accurately” predict the effects on the markets, and thus changing our allocation is probably a “fools errand”.


I agree, and that has been my strategy for 25 - 30 years, and I guess I'll stick with it.  Settled on this strategy partly from mistakes I made over the first ten or so years I invested.     Hope a contested election isn't the "last straw."  The country already has a lot of problems.

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Re: Election Results Uncertainty and the Market

At noon January 20th per the 20th amendment. If no clear winner comes from the electoral college both houses of congress will decide. That would be a complete spectacle so the best hope is to have a "normal" election process.


@steelpony10 wrote:

        Well someone should double check this but as far as I know a presidential term ends on 1/20/2021 no matter what. In the modern era the nuclear codes have to be transferred to someone then. You would think that should, ha, ha, further require a quick solution. One of the duties of the military is to uphold the Constitution to make that all happen, But the great Satan is taking needles from many factions and the Constitution gets shredded a little more over time.

         As far as gaming an unknown I’am never really surprised that remains so prevalent with amateur investors. I never see the professions invest in that manor. With bank rates probably lower then most personal inflation rates markets are the only option at the present time. Of course the holy grail of allocations remains a myth. 


 

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Re: Election Results Uncertainty and the Market


@chang wrote:

Personally, I think the election will be a landslide and stocks will soar. But if it's contested (someone doesn't concede, brings lawsuits, SCOTUS involved, etc.), then there will be one hellova dip to buy on. I would probably go 100% in.


I think you are probably correct.  Big Christmas sale coming up. 

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Re: Election Results Uncertainty and the Market

I keep it "simple", when I see elevated risk, such as VIX >35 I sell a big % of my portfolio and wait days to come back.  What 5-10% stock reduction will do anyway and why bother? the answer is, it feels better than doing nothing.

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Re: Election Results Uncertainty and the Market


@FatKat wrote:

@chang wrote:

Personally, I think the election will be a landslide and stocks will soar. But if it's contested (someone doesn't concede, brings lawsuits, SCOTUS involved, etc.), then there will be one hellova dip to buy on. I would probably go 100% in.


I think you are probably correct.  Big Christmas sale coming up. 


That assumed a contested result. But I don't think that's going to happen... hence, I don't think there will be a sale. I added on the last dip, so my plan is to do absolutely nothing from here on out, barring any seismic events.

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@FD1001 wrote:

I keep it "simple", when I see elevated risk, such as VIX >35 I sell a big % of my portfolio and wait days to come back.  What 5-10% stock reduction will do anyway and why bother? the answer is, it feels better than doing nothing.


Chances of elevated VIX over 35 is low. Vix at 25.85  is close to 12 mo average of 25.77. There will be bigger gains by buying discounted techs such as MSFT, AAPL, AMZN and QQQ which will appreciate well beyond their prior highs as the economy gets stronger. All of my aggressive trading is in a Roth IRA where no income tax is incurred. 

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