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Election Countdown: Will the Outcome Impact Investors’ Outlooks?

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In case you haven’t heard, on Tuesday, November 8, Americans will go to the polls to elect the 45th President and 48th Vice President of the United States. For many, the end of the current campaign season will not have come soon enough.

As of Friday’s close, the S&P 500 is in the midst of its longest losing streak since December 1980, having fallen for nine consecutive days. Since 1928, there have been only 12 instances where the S&P has fallen for at least nine straight days, according to FT.com. Much of the market’s decline has been attributed to the ongoing FBI investigation into the email activities of Democratic presidential candidate Hillary Clinton, along with falling oil prices. Prior to the announcement that the FBI had discovered new emails on an unsecured personal computer and was investigating whether any criminal activity had taken place, most analysts believed the stock market had already priced in a Clinton victory on November 8. Since then, however, polls have narrowed from coast to coast and the outcome of the election has become less certain. Since the market hates uncertainty, it is perhaps not surprising that the market has seen a sell-off, nor that volatility has spiked over the last two weeks. The CBOE Volatility Index (VIX), which measures investors’ expectations for stock movements in the next 30 days, has risen for nine days in a row through Friday’s close, jumping 74.5% from 13.02 on October 24 to 22.72 as of the close on November 4. According to The Wall Street Journal, this is the highest level since the immediate aftermath of the U.K.’s Brexit vote in late June.

Since the market hates uncertainty, it is perhaps not surprising that the market has seen a sell-off, nor that volatility has spiked over the last two weeks. The CBOE Volatility Index (VIX), which measures investors’ expectations for stock movements in the next 30 days, has risen for nine days in a row through Friday’s close, jumping 74.5% from 13.02 on October 24 to 22.72 as of the close on November 4. According to The Wall Street Journal, this is the highest level since the immediate aftermath of the U.K.’s Brexit vote in late June.

Weekly Poll Question:

Never lacking for hyperbole, some political pundits are calling this election the most important in our nation’s history. If in fact, so much is riding on Tuesday’s election outcome, we asked our readers what they think is the best investment over the long-term. Specifically, we asked:

Which would be the single best way to invest money you wouldn’t need for more than 10 years?

Here is how they responded:

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Unlike the results on Tuesday, which will probably be much closer, the overwhelming majority of respondents–81% of the 2,290 readers who voted as of 8:30 a.m. (Central) on Sunday–agreed that stocks are the best way to invest money they won’t need for more than 10 years. So the typical investor doesn’t seem to believe that Tuesday’s election outcome will dethrone stocks as the best long-term investment vehicle.

In distance second place with 10% of the votes was real estate.Almost 50% of respondents look to stocks as a source of investment income through either individual stocks, mutual funds/ETFs or preferred stocks. The overwhelming favorites among our readers as a source of investment income are individual

Tied for fourth place, with 2% of the votes, were gold/precious metals and bonds. Very few Almost 50% of respondents look to stocks as a source of investment income through either individual stocks, mutual funds/ETFs or preferred stocks. The overwhelming favorites among our readers as a source of investment income are individual

Only 1%–19 voters–believe that cash (savings or CDs) is the best place to invest money you won’t need for at least 10 years.

Special Question:

While the office of President of the United States is often called the most powerful position in the world, the executive branch of the U.S. government is only one-third of the puzzle. The legislative branch makes the laws and the judicial branch rules on the constitutionality of those laws.

Trying to put the election in perspective from an investor’s point of view, last week’s AAII special question asked:

The U.S. presidential election is on November 8. Will the outcome change your outlook on the stock market? If so, how?

In all, 398 readers responded, with 310 specifically stating whether the election outcome will change their outlook on the stock market

Out of those 310 respondents, 73.2% said that the election would not change their outlook on the stock market. Another 20.3% said that the election results would impact their outlook on the stock market. To round out the results, 2.6% said they would have to wait and see who won the election and 1.9% said they didn’t know.

Roughly one-third of respondents–110 in all–also voiced their opinion on which of the presidential candidates would be best for the stock market. Nearly 61% said that a Hillary Clinton victory would be the best for the stock market while 34.3% said a Donald Trump would be more advantageous for investors. Another 7.3% said that neither candidate would have a more positive (or negative) impact on the stock market.

To learn more about the election cycle and its impact on the stock market, read this article from AAII: https://www.aaii.com/journal/article/using-seasonal-and-cyclical-stock-market-patterns

Here is a sampling of the results:

  • “A Trump victory would mean much better conditions for both existing and new businesses as tax and regulations are improved.”
  • “A Trump win will give me optimism because there will be a definite effort to achieve free trade in its purest sense, not trade where the US accepts unfair aspects of trade deals in order to push a social agenda. A Clinton win will dampen my optimism forcing the market to continue following crony capitalistic principles rather than business fundamentals as would occur in a truly free market.”
  • “A Trump win will likely increase market volatility until we find out just how different his presidency will be. I plan to stay the course.”
  • “A winning margin of over 5% indicates voters want the winner’s program. Less than that is essentially a form of gridlock. Be guided accordingly.”
  • “Assuming Hillary Rodham-Clinton wins, I’ll be more conscious of taxes, especially capital gains tax rates. If The Donald wins, well, I have no idea.”
  • “I believe the market does not like change. Therefore, it will likely be less disruptive with Clinton. We are nearly 100% cash and presently waiting for proper conditions to get back in.”
  • “No matter who wins, the market will go down.”
  • “Most of the promises [the candidates made] will never get by Congress.”
  • “The key question is whether the Democrats control both houses of Congress as well as the Presidency. If they do, then there will be significant changes to the tax laws and federal spending priorities which will change the rules of investing and the successful (and unsuccessful) sectors of the market.”

And in the “they may have the right idea” category:

  • “All I know for sure is that I’ll be playing the DebateDrinking.com game as the election returns trickle in on Tuesday night!”

Everybody has an opinion! Why not give us yours? Participate in our weekly member poll, updated every Monday, and see the results online at http://www.aaii.com/memberquestion.

 

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