As Republicans won control of the Senate and expanded power in the House in last week’s midterm elections, the snapback rally continues, pushing many indices to all-time highs. Some pundits have gone so far as to say that the impending Republican victory was the reason stocks rallied and volatility retreated in October. Although voters overwhelmingly chose red, there’s a rainbow of interpretations about what the election means for the markets.
We have heard some investors say the election results have made them bullish about the markets – they want to invest more. Some pundits have taken the other side, fearing that the dysfunction between Congress and the Administration will create uncertainty and restrict corporate growth. Still others are concerned that a divided government will make the regulatory environment uncertain and intensify gridlock, thereby making them bearish on the markets.
Who’s right? More importantly, will the election results have a long-term impact on your portfolio?
Do you remember the 2012 Presidential elections? The political debacles of 2013, the government shutdown and the debt-ceiling crisis? The plethora of political issues we faced, ranging from Fiscal Cliff Crisis, to monetary policy and regulations, among others? While those events were unnerving to investors and caused Congress’ job approval ratings to plummet, stocks soared despite them. Including dividends, the S&P 500 Index returned 32.39% in 2013 – one of its best years ever! Source: Morningstar.
While markets are unpredictable over the short term, it is hard to see the midterm elections having a major impact on the financial markets or the stock market over the long term. Elections may indirectly influence the equity markets, but we believe they are far less important than the state of the economy, the direction of corporate earnings, valuations levels, and fundamentals that ultimately determine a company’s stock price.
If you are a true long-term investor, perhaps you should try to do what many are trying to do anyway – ignore the election altogether. Political and media drama can inflame our fears and anxiety or our greed, distracting us from our Life Priorities and leaving us vulnerable to poor decision-making. Recognize the media’s vested interest in fanning the flames. Recommit yourself to making investment decisions driven by evidence and devoid of emotion. Remember that a properly diversified portfolio is designed to see you safely through short-term challenges so you can reach your long-term goals and meet your needs for income and growth.
Don’t change your focus and more importantly your hard-earned portfolio. Win or lose, the midterm elections are now complete, which historically has been a victory for investors in and of itself.