What the election means for the market

Equities have rallied, the economy is recovering, and we are learning to live with COVID-19, all of which is good news. However, this means the presidential election can now command the media’s—and the market’s—full attention. Politics are already top of mind among investors who work with our financial advisor clients. In fact, in our most recent advisor survey 75.7% of respondents stated domestic and/or global politics were having a meaningful impact on client behavior. Now, there are many reasons to buy or sell a security or change an asset allocation, but politics shouldn’t be one of them, which has no impact on the long-term direction of the economy or risk assets. What matters is policy.

Politics can be additive to market volatility near-term, which brings us to Brinker Capital’s Market Performance Probabilities Grid. This tool lays out our Asset Allocation Committee’s best thinking on how the S&P 500 Index (S&P 500) will trade over the coming few months. We now expect an increased probability for greater volatility—both to the upside and downside—with the election as the likely catalyst for those market moves. On the upside, a clear and market friendly outcome heading into and on election day could see equities rally 10%+, while a contested election could see the market sell off 10% to 20%. While a range bound market remains our base case, we all need to brace for greater volatility over the coming few months, particularly if we are unable to declare a winner on November 3. Finally, with the S&P 500 up 0.75% since August 3, our Election Countdown Calculator indicates Donald Trump will win reelection.

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Tagged: weekly wire, market perspectives, Tim Holland,  S&P 500 Index, Presidential election, Election Countdown Calculator, earnings season