Some investors say the U.S. presidential election is coming, but it may not have as big an impact on markets as people think. With just over two weeks until the election, the race between former President Donald Trump and Vice President Kamala Harris appears to be in a “stalemate,” according to a new NBC News poll. Trump has seen a resurgence in the polls recently, along with recent signs that stocks are pricing in a victory for him and perhaps even a Republican sweep. Meanwhile, Harris’ popularity has declined from its summer peak. But many investors are optimistic that the stock market bull market will continue regardless of the election outcome, especially given the recent performance of the major stock indexes. While the Dow Jones Industrial Average and the S&P 500 were lower on Monday, they both ended a six-week winning streak, which was the biggest gain for either benchmark this year. The S&P 500 is up about 22% for the year. History shows that strong performance predicts popularity after the election and into the end of the year. Sam Stovall, chief investment strategist at CFRA Research, said that looking at data going back to 1944, early strong performance in an election year usually means “further improvement” in November and December. “So, history suggests, but does not guarantee, that active managers are likely to go all-out in an effort to meet or beat their benchmark returns in the final months of this unusually strong election year,” Stovall said. The strategy Analysts pointed out that investors’ “hungry for growth” is particularly good for communication services, finance and information technology, but not so good for consumer staples, materials and energy. Scenario investors expect the election to have little impact on the stock market in part because candidates’ past policies have had a poor impact on performance. When Trump was elected in the 2016 presidential election, investors expected energy to do well, but the subsequent two years proved detrimental to the industry. Meanwhile, renewable energy, a centerpiece of President Joe Biden’s 2020 campaign, has lagged throughout his presidency. The Invesco Solar ETF (TAN) has been declining for the past four years, including this year. “I think the lesson from this is that investors shouldn’t pay too much attention to politics, they should really pay attention to how industries and companies are changing and where there is consolidation,” Alger CEO Dan Chung said. Other market observers expressed similar sentiments. Last week, John Stoltzfus, chief investment strategist at Oppenheimer Asset Management, urged investors “not to read too much into the likelihood of presidential, House or Senate election results.” Of course, investors weighing the likely election outcome expect a Harris victory and a divided Congress could be positive for stocks. The Democratic-controlled House and Republican-controlled Senate are unlikely to pass any legislation, especially if it increases personal or corporate taxes. Meanwhile, a Trump victory could be welcomed by markets, which have been pricing in a Trump victory, but also raise questions about the former president’s seriousness in imposing tariffs that could hamper global trade. Risks of Delayed Results To be sure, one potential concern for investors may depend on how controversial the results are, with delays potentially leading to increased volatility. “We emphasize the potential for delays in election results,” Morgan Stanley Wealth Management’s Monica Guerra wrote this month. “Intense races, along with mail-in voting and fragmented vote counting, increase the likelihood that the election will be delayed over a period of time,” Guerra wrote. The possibility of an uncertain timeframe, which could increase volatility/” Election delays could last from days to weeks. The firm noted that after the 2020 election, the CBOE Volatility Index surged 40% for three consecutive days until a winner was chosen. During the 2000 election, the volatility lasted for more than 30 days and continued into December. “We encourage investors to keep their long-term goals in mind during this time of uncertainty and election-related volatility,” Guerra wrote. Still, many investors are not waiting for the election results to become clear before beginning to position themselves for a bullish turn at the end of the year. “I wouldn’t wait on the sidelines for clarity on the election or anything else,” said Ross Mayfield, investment strategist at Baird. “I would lean toward facing uncertainty and increasing leverage, Invest in riskier sectors and asset types.”
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