Post-election volatility will calm down

Many investors are understandably worried about the results of the U.S. presidential election. Markets were very volatile overnight Tuesday into Wednesday, with U.S. stock futures selling off by nearly 800 points at one point, and Japan’s stock market – the world’s second largest – losing 5% overnight. U.S. interest rates jumped, pushing down bond prices.

This type of market volatility is very common before and after elections, said Jonathan Lemco, a senior strategist at Vanguard Investment Strategy Group.

“The outcome of the election is meaningful because markets inevitably react, and having some context for short-term market movements can help investors manage expectations,” he said. “But in the end, short term developments are less important to our success than the big-picture trends that will shape markets in the years ahead.”

He noted that volatility typically stabilizes within the first 100 days after an election as market participants have a chance to digest the news. Also, even more significantly, stock market performance since 1853 is virtually the same no matter who controls the White House, he said. In the end, businesses will adapt to new circumstances in order to stay competitive and profitable, and factors other than who is president – such as Federal Reserve policy, global trade, technology, demographics, and others – will determine the course of the economy.

 

electionsandshortermgains

Richard Schroeder, CFP®, Chief Investment Officer

 

Richard Schroeder
Richard Schroeder