While we still don’t know for sure how this election is going to ultimately shake out, one important point has been hammered home by the market today: Trying to invest based on predicting political outcomes is foolish.
Going into this election, the one thing everyone could seemingly agree on was that there were three possible combinations of outcomes that were positive for the market in the short-term and one that was negative.
The one combination that was thought to be a big negative was if the Republicans held the Senate and Joe Biden won the presidency because in that event the Republicans would revert to their obstructionist 2010 playbook and not pass another big stimulus package. Any other combination — Trump + Republican Senate, Trump + Dem Senate, or Biden + Dem Senate — were thought to be a recipe for more stimulus (and spending in general), which was thought to be positive for stocks in the short run.
So what do we know for sure? The Republicans appear to have held the Senate. It’s looking increasingly likely that Biden will end up as president. Whether he does or not, the probability of that one "negative" outcome is clearly higher today than yesterday.
How has the market responded? It’s absolutely ripping higher. Just like everyone no one expected!
Making investing decisions based on predictions of the future — in any area, but especially politically — is an exceptionally difficult approach. Few investors have been able to find consistent success doing that — and many have hurt their long-term returns dramatically by trying. Look no further than the many conservatives who stayed away from the stock market for years after the last Democratic president took office in 2009...and missed out on the early stages of the last powerful bull market.
As always, the best approach to long-term investing success is to follow a personalized, "inside-out," long-term investing plan. Mixing in politics, as important as politics may be, is a bad recipe for investing success.
