On 3rd November the US midterm elections take place.
Control of Congress, and therefore control of the most influential country in the global economy, is up for grabs.
Record high diesel prices fuelling inflation, AI data centres and the ongoing war in Iran will dominate the list of priorities for voters.
US politics and the state of the States could give some cause for concern in the UK, as well as the rest of the world. The media will be full of predictions about the economy and which companies, sectors, or markets could win or lose depending on the outcome.
But, just what should financial advisers be thinking about and discussing with their clients?
What history tells us about US elections
US markets have historically risen under both parties, regardless of which party the President has belonged to, and who has control of Congress.
S&P 500 data, Parmenion graphic.
Only three presidents in the 20th and 21st centuries saw the S&P 500 fall over their term: Herbert Hoover, Richard Nixon and George W. Bush.
And the falls?
For George W Bush it was the dot com crash and the 2008 global financial crisis. Richard Nixon saw a period of stagflation after monetary policy changes, and Herbert Hoover was president during the Great Depression.
Investors may try to map sectors to political outcomes, but the evidence is mixed. Trump is seen as pro-oil, but energy performed poorly in his first term, as it did in Obama’s presidency. It was one of the best in Trump’s second term, as it was in Joe Biden’s. Meanwhile, technology has been one of the top sectors across the last four presidencies. It just shows that sector performance isn’t following a clear party line.
Some think a split Congress performs better because the US government can’t bring about big changes that could interfere with businesses. And while the US government does influence the economy, issues of monetary policy, economic growth, the labour market and corporate earnings are all at the mercy of other factors.
The challenge isn’t in predicting the elections, it’s predicting how millions of other investors will react to the result. That’s tricky to do.
We don’t need to predict the future
The message to clients – we don’t have to worry about the result.
Firstly, no one knows what’s going to happen over the next few years. Election wins don’t mean the policies the parties ran on will or won’t be carried out. We can predict, but we can’t be certain.
Secondly, politics is very short-term in the context of investments. Compared to presidential and congressional terms, investments are often life-long commitments. A longer outlook is necessary, and significant life events like approaching retirement need appropriate plans and strategies.
When it comes down to it, what we know is long-term asset allocation matters, more than trying to tailor portfolios to short-term events.
That's where a diversified portfolio comes in - positioned to weather all sorts of different scenarios over the long-term, rather than waiting for one particular outcome to play out.
We take a long-term approach
All our solutions in our Outcomes Range are structured around a carefully considered long-term view, designed to give clients the best possible chance to achieve their goals.
Learn more about our investment philosophy and how our portfolios are built to look beyond short-term market noise.
This article is for financial professionals only. Any information contained within is of a general nature and should not be construed as a form of personal recommendation or financial advice. Nor is the information to be considered an offer or solicitation to deal in any financial instrument or to engage in any investment service or activity. Parmenion accepts no duty of care or liability for loss arising from any person acting, or refraining from acting, as a result of any information contained within this article. All investment carries risk. The value of investments, and the income from them, can go down as well as up and investors may get back less than they put in. Past performance is not a reliable indicator of future returns.
