With stocks in a recent slump, there is growing fear that November’s midterm elections are going to generate new chaos in the investment markets. Will the Democrats take over Congress and the Senate? If so, will they immediately begin impeachment proceedings against the president?
Lauren Rublin, a managing editor at Barron’s, adds perspective: “Our concern is with the longer-term impact of these historic races — specifically, what the outcomes will mean for the capital markets and investors. The stakes are particularly high in this election season, given America’s tariff battle with China, a growing federal budget deficit and an aging bull market, not to mention the partisan slug-fest consuming the country.”
In other words, many market watchers are conjuring images of a short-term and long-term horror show.
While the stock market has a general distaste for a cauldron cocktail of volatility and uncertainty, most analysts agree that once the election is behind us, the market will focus again on business fundamentals such as corporate profits. So, what is causing the recent stock market losses? According to Greg Valliere, the D.C.-based chief global strategist of Horizon Investments, “The cynical response is: It’s October.” (Based on data in the Stock Trader’s Almanac, October is the most volatile month of the year.) Valliere adds: “I think the problem is, ironically, that the economy is too strong. We’ve got a red-hot economy right now.”
Even Federal Reserve Chairman Jerome Powell has described our economic trajectory as “extraordinary times.” He adds, “The economy is strong, unemployment is near 50-year lows, and inflation is roughly at our 2 percent objective.” Powell expects these conditions to persist.
Charles Schwab’s chief investment strategist, Liz Ann Sonders, takes a more somber tone, reminding us recent stock market action illustrates why it is important to remain disciplined and diversified in a way consistent with your risk tolerance and investment goals. In the data she monitors, nonpolitical risks have been rising, and Sonders recommends more caution for stock investors.
The bottom line: It is not rational to make investment decisions based on political elections. Don’t waste time or energy trying to forecast the next bear market or recession.
So, the midterm will come and go. Find solace in knowing we are not strangers to divided government. In fact, some may argue that a couple of years of deadlock might clear some of the political cobwebs of dysfunction (we can dream).
Let common sense prevail. Build a solid financial plan that is focused on your long-term goals, construct a well-diversified portfolio, and ignore the noise.
Featured in the Knoxville News Sentinel October 25, 2018
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