Stocks were volatile in the lead up to election day. After US stocks neared record highs in early October, they plummeted in the last week of October, their worst one-week performance since March.
Markets were under pressure from rising Covid cases, but the impending election may have been the largest factor at play.
The S&P 500 fell -2.5% in October, while the tech-focused Nasdaq 100 lost -3.0%, and the Dow gave back -4.4%.
Stocks rallied after election day
Large-cap stocks soared the day after the presidential election and continued even without a final vote count, staging their biggest rally since April.
“Stocks rallied globally as investors rushed back into technology and health-care firms on bets that the U.S. election results will mean no major tax hikes or regulatory changes that would derail the sectors,” Bloomberg noted.
The tech-focused Nasdaq 100 pushed its advance this week to around 9%. The S&P 500 had its biggest election week gain since 1932, according to CNBC. Foreign markets also posted strong gains for the week.
Market volatility may continue, but during an election year, November is usually the best month of the year for the S&P 500.
While it’s good to pay attention to the financial markets and to elections, it’s how you respond to these changes that really matters. And your reaction is likely to be affected by how you feel about the eventual winner of the election.
It’s clear that Americans have very different ideas about what’s best for the country, but when it comes to investing, there’s still a lot we all agree on, and that’s worth remembering right now when the country seems so divided.
What we can all agree on
Long-term investors will be rewarded.
No matter what direction the market takes short term, staying invested is still likely to help you achieve your long-term financial goals. And if history is any guide, in five years’ time, you’ll be happy you stayed the course.
Keeping a long-term focus can also help you avoid the pitfalls of short-term thinking. “Decades of research show us that short-term thinking is linked to increased impatience and discounting of future rewards, impulsive decisions, higher debt, lower savings, excessive risk-taking, and poor health decisions,” Morningstar reported.
Invest based on your goals and needs, not your political party.
Your political outlook can affect how you invest. A 2017 study found that “investors become more optimistic when their affiliated political party is in power,” Mark Hulbert reported in Marketwatch earlier this year. But this can lead to investment mistakes, as we saw in 2008 and in 2016 when some investors sold out of stocks due to political fears and missed out on good gains.
Instead, try to invest with an open mind about what future markets will bring, and be prepared to change your portfolio if market conditions change. As UBS warned: “Positioning a portfolio right now for a specific outcome leaves it vulnerable to the good chance that another outcome, with different market consequences, materializes.”
Your investment plans should be tailored to your long-term goals and your risk level, and that includes an allocation that’s designed to help you participate in the market’s gains and stay invested through periods of uncertainty and volatility. This is the foundation of any FundX investment plan.
You should also be prepared for the unexpected, which is why most people need a cash cushion of six to 12 months of expenses to tide them over in an emergency.
There will be good investment opportunities no matter who is in the White House.
Change can feel scary, but as we’ve seen in our decades of investing, changing markets often bring new investment opportunities. Despite the current insecurity, we believe there will certainly be many positive changes coming. Hopefully, now that we’re passing the peak of earnings season and the election, these clouds will lift.