With 2 ½ weeks left, we are about to enter the home stretch of the presidential and congressional elections. It’s natural to question what will happen and contemplate the impacts. Uncertainty, political or otherwise, weighs on financial markets as well as individuals. This is why the weeks leading up to presidential elections are often marked with elevated volatility. Volatility is a normal market reaction to uncertainty. The good thing is uncertainty (specifically, political uncertainty in the near-term) will eventually dissipate.
As this year’s odd events unfolded, it’s important to remember we’ve been here before. The much more lethal Spanish Flu outbreak of 1918 was a Congressional election year. Society survived even without the electronic conveniences of today. Likewise, it was only 20 years ago when election results were challenged which are anticipated to happen this go around. Hence, once the results are finalized and the outcomes known, markets will accept the results and focus the economic and business climate.
Speaking of moving beyond the elections, the Organization for Economic Co-operation and Development (OECD) recently release its quarterly economic outlook¹. Based on the OECD expectations, the world should see growth going forward. Recent economic data has supported the projections with globally synchronized and impressive improvement. Even the “Downside Scenario” should see positive momentum, albeit at a subdued pace.
The deep and unnatural COVID induced recession has resulted in a strong rebound. The OECD, as well as other organizations, expected the rebound to turn into a recovery leading to the next expansion. It’s this momentum that is be more instrumental to the financial markets than the U.S. elections, eventually overcoming the near-term election uncertainty and accompanying market volatility.
The economic and business environment is what the financial markets care about, not political power. Governmental policy (and policy latency) is one of many areas. Consumer preferences/trends, interest rates, competition, new products/services, labor costs, demographics, and going concern (to name a few) form the extremely complex matrix that financial market performance evolves from.