This Type Of Outcome For Midterm Elections Is Usually Beneficial For Markets

After Tuesday’s midterm elections, it could not be clear which political parties control both chambers of Congress until December. However, this does not imply that you should similarly maintain an ambiguous approach to your own investing. According to Dan Egan, vice president of behavioral finance and investing at Betterment, the upcoming results may not cause significant markets to react because the fate of some crucial races is still uncertain. We still effectively have a somewhat balanced administration, which is something that markets often prefer, according to Egan. UBS also hinted that the election results would be good for the markets in a note on the midterms that was published this week.

Whatever the outcome, a divided government is in the works, which raises the possibility of deadlock and restricts legislative action, according to Solita Marcelli, Chief Investment Officer Americas at UBS Global Wealth Management. Since it lowers policy and regulatory risk, this is often beneficial for markets, she said.
Investors who try to decipher what the control of one party or another might entail for future stock gains may be let down. According to Vanguard data, portfolios with a split of 60% equities and 40% bonds typically perform the same regardless of which party is in power. Nevertheless, according to Egan, many investors have a predisposition that the success of the opposing team or party is negative.

The more political a person is, the more likely they are to say, “Well, the stock market is going to do awful because the economy is going to do poor,” whether you’re a Democrat or a Republican, Egan said. Even if there isn’t a valid reason to do so, he said, this can cause those same investors to minimize the amount of risk they are taking.
The ability to compartmentalize can aid in preventing those reactions.

Remember how little authority any particular group of politicians has over the stock market or the economy as a whole, advised Egan. Furthermore, you risk missing out on the market’s upside if you decide against taking investment risk in response to the outcomes. According to a U.S. Bank survey, the S&P 500 Index typically outperforms the entire market in the 12 months following a midterm election, returning an average of 16.3%. The midterm elections, which determine control of the Senate, the House, and ballot initiatives, may serve as a useful prelude to the presidential contest. When considering how you felt and felt during the election cycle, particularly with reference to financial decisions, Egan remarked, “It’s the junior varsity game before the varsity game.”

Investors would want to start considering important issues now that could be impacted by an election and have an impact on their own finances, such as proposals to limit the deduction of state and local taxes, for example. Think about policies instead of politicians, Egan advised. Additionally, it is beneficial to prepare in advance for the decisions you will make in light of potential outcomes. Consider the scenarios that could occur on election day and how you would adjust your portfolio three to one month before to the next election. Then, make a note to review those preparations once more the week before voting. As a result, you’ll have a strategy you can carry out that you developed while you were composed, according to Egan. It also helps to maintain some distance once the results start trickling in so that you do not become emotionally involved. When it comes to your returns and stress level, Egan advised trying to tune out and engage in activities rather than paying attention on those days.