Presidents come and go in the White House, but Wall Street remains unfazed about the next leader – for now. Despite uncertainty over who will occupy the Oval Office by the end of the year, banking heavyweights are optimistic about the market outlook, predicting a rally regardless of who is sworn in in January.
Analysts said Fortune that the whims of the new politicians – especially in these early stages of the elections – are for the moment only “background noise”, adding that they are more focused on the continuity of economic performance than on the policy proposed.
With a major political event on the horizon, business giants will inevitably be pressed for their prospects.
Jamie Dimon, CEO of JPMorgan Chase For example, told CNBC In Davos, President Trump was “mostly right” on some issues.
The man who previously described himself as ‘barely a Democrat’ clashed with President Trump, but warned President Biden against dismissing MAGA supporters, adding: ‘Can we stop this stuff and grow up and treat others with respect and listen to them a little. a little bit?”
Similarly, the CEO of ChatGPT maker OpenAI, Sam Altman, said that while “a lot is at stake” in the upcoming election, he thinks AI and America in general will do “well “.
Talk to Bloomberg, also in Davos, Altman said: “I think elections are huge deals. I believe America will be fine no matter what happens in this election.”
But as the noise, tension and uncertainty around America’s highest office increases toward the end of the year, Wall Street experts have offered the same advice: Don’t base your portfolios on politics.
Too early to worry
There is something to keep investors busy at the moment: When will the Fed cut its key rate?? Will inflation rebound? Could geopolitical tensions cause economic disruption? Will jobs remain stable? And can consumers remain robust?
While an election can influence a number of these factors, some analysts said they aren’t paying too much attention to political maneuvering at this time.
“The markets don’t really care about it at this point,” said Paul Donovan, chief economist at UBS Global Wealth Management. “Investors are not taking into account the outcome of the November elections, which remain complicated.
“It is assumed that former US President Donald Trump would win the Republican nomination, so what is happening now is just background noise.”
In a later conversation with FortuneTom McLoughin, Donovan’s colleague at UBS, explained that markets will remain stable until the landscape is better defined.
McLoughin, UBS’s head of U.S. fixed income and municipal securities, added that markets will become more “concerned” about election news after the summer.
Goldman Sachs also keeps his cards close to his chest.
In a note sent to Fortune This week, analysts Dominic Wilson and Vicky Chang wrote that while the election has the potential to be a “major market event,” it is difficult to determine the outcome at this point.
An end-of-year gathering
As with many economic issues today, analysts are divided on the details but reach a general consensus on the trajectory of the economy.
For example, economists largely agree that a soft landing will likely occur in 2024 and that the Fed will begin cutting rates around the middle of the year.
And even though the bullish and bearish outlook divides the market, economists generally agree that when political uncertainty ends in the fourth quarter of 2024, the market will see an uptick.
On the bullish side, Bank of America chief equity technical strategist Steve Suttmeier said the S&P 500 could swing above the 5,000 mark.
According to his calculations over the 24 cycles from 1928 to 2020, the SPX rose on average 75% of the time with a “solid” average return of 7.5%.
However, this performance varies during the year, the score observed by Fortune highlighting that the S&P500 often struggles between January and May, “before much higher returns for the remainder of the fourth year, punctuated by a summer rally from June to August and a post-election relief rally from November to December” .
From a long-term secular bull perspective, he added: “The 2022 to 2023 trend…and our secular bull market roadmap charts also suggest the S&P500 spends some time above 5,000 in 2024.”
Citi Group also expects stocks to trade well in 2024 with Alex Saunders, head of Citi Research’s global quantitative macro and asset allocation team, telling Fortune that assets tend to trade well during election years, particularly if an incumbent president, like Joe Biden, is running.
Mean reversion is also often expected after elections, with asset prices and historical returns returning to their long-term trajectory.
Meera Pandit, global markets strategist at JPMorgan, isn’t as convinced by the bullish outlook, because based on her data set (1932 to present), S&P 500 returns averaged 6.2 % during election years, compared to 9.6% during non-election years.
However, Pandit agrees that in the fourth quarter, investors can expect some optimism.
“Markets tend to be more volatile in the run-up to elections, but after election day, this source of uncertainty is removed and, regardless of the outcome, markets move forward and refocus on fundamentals,” he said. -she wrote in a note. provided to Fortune.
“In fact, median returns in the first three quarters of an election year were 1.9%, compared to 3.1% in the fourth quarter, going back to 1936.”
Wallets and politics
Despite this trajectory – the exception to Pandit’s data being 2000, when the outcome was finally ruled by the Supreme Court, and 2008, when the first bubbles of the financial crisis emerged – the analyst encouraged investors to instead keep eyes on the long term. to make policy-based portfolio decisions.
“While uncertainty can create opportunities, investors often make their worst mistake during times of uncertainty, which can sometimes take years for portfolios to recover,” she writes.
“Political opinions are best expressed in elections, not in a portfolio. Investors should follow one cardinal rule: don’t let what you think about politics override how you think about investing. »
Although voters often think the economy is doing better under their preferred candidate — which could impact their choices — Pandit points out that’s probably not true.
Under both Obama and Trump, for example, S&P returns were around 16%.
As such, she adds, “macroeconomic conditions, such as extremely low interest rates…were a more influential driver of above-average returns during these periods, rather than policy prescriptions adopted by every president.”
Avant-garde The research challenges the commonly held idea that elections trigger market volatility. Looking at the 100 days before and after elections from 1984 to 2020, volatility was 16.5% and 15.9%, respectively, both lower than the overall rate of 17.9% during this period.
JPMorgan, while slightly cautious about volatility, aligns with Vanguard’s advice on how investors should handle the election, emphasizing: “It’s natural to worry about the election, but historical data indicates that They are not a problem for your wallet and the markets. »
