With both parties' slating conventions behind us, the only question to be resolved is "Who are you voting for?" For investors, the question is which candidate, if he becomes president, will provide a positive impact on the stock market?
There's never been an easier way to offend an audience of readers than to discuss politics in September of an election year. We are all passionate about our candidates. We all have opinions. So let's put our political differences aside and focus on who the stock market favors as our next President.
Clarity is Key
We all want clarity. The unknown has been dragging small business owners and investors nearly to the brink of insanity! This is what investors want to know:
-Taxes. What will happen with individual and capital gain tax rates?
-Employment. Will there be new job growth?
-Healthcare. Will ObamaCare survive?
-Fiscal Cliff. What will our nation’s budget look like?
-Interest Rates. Will fiscal easing continue to keep rates low?
The answers to these questions will impact the stock market. And, the answers will not come the day after the election. Policy changes and their impact are felt over a longer period of time.
Does the stock market care who is president?
The answer is "no." The stock market does not care who the President is, but it does influence whether a sitting president or a given political party can keep the White House. Recent history indicates that a poor economy and/or a poor stock market will generally call for a change.
1990: The real estate market crashes, along with the economy, during a time when George H. Bush had a near 90 percent approval rating. However, he ultimately loses his bid for a second term two years later when the slowing economy beckoned voters to look for a new approach.
-1992: The struggling economy brought the Democrats and Bill Clinton into the White House. During his first four-year term, we began our most infamous bubble, the dot-com bubble, in 1994. The booming internet stocks carried Clinton into a second term, where the bubble finally burst in 2000. The White House would again turn over due to the poor economic conditions.
2000: The Republicans won the next election with George W. Bush. He inherited the busted internet bubble. Then, less than one year into office 9/11 occurred. The stock market fell, but eventually recovered. This was due in part to the Fed easing which kept interest rates low. President Bush won a second term.
-2008: With the financial crisis at hand, the Republicans lose to President Obama. His term has been saddled with the global financial meltdown that he inherited. While the unemployment rate has increased and the economy is stuck in neutral, the stock market has rebounded due to low interest rates.
As indicated, the last several elections have been influenced by the bust and boom of the economy. While it is hardly fair to blame one president for economic struggles and praise another for its recovery, voters tend to support a change in bad times.
The impact of the upcoming November election on the stock market is difficult to predict with a high level of confidence. For investors, the best advice is to maintain a diversified investment portfolio that is positioned to meet your personal long-term goals. Over the long-term, and the next several election cycles, there will be more busts and booms. You can best prepare by focusing your portfolio on your personal objectives and risk tolerance.
This article was contributed by Evan D. Bedel, CFP, a financial planner at Bedel Financial Consulting and provider of Generation NeXt services, which focus on the advice needs of 18 to 35 year-old clients.
Elaine E. Bedel, CFP, is president of Bedel Financial Consulting, Inc., a wealth management firm providing fee-only financial planning and investment management services for individuals, consulting services for corporate retirement plans, and investment advisory for institutions and endowments. She is the author of "Advice You Never Asked For…But wished you had!" available on Amazon.com. For more information, visit their website at www.BedelFinancial.com or email to firstname.lastname@example.org.
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