Last Thursday was the big debate. How did it affect the market? And what did the market’s post-debate behavior imply about its potential reaction to the election outcome?
To begin with, I think it’s important to start with the assumption that people don’t typically invest based on what happened in the past. For the most part, we believe investors put their money on something they see occurring in the future. They look forward, and therefore we believe the stock market does the same. Generally speaking, market activity seems to reflect the overall financial outlook six months into the future. For example, if you analyze typical recessions (not a sudden shock like the pandemic), you will notice the stock market usually begins to decline six months prior to the actual recession. The same thing is true on the upswing: the market starts going up six months before the end of a recession.
Currently, I think investors are trying to guess what the future looks like six months from now, which is, of course, post-election. It seems to me that many people on both sides of the political spectrum fear the election outcome might cause the market to tank. It also seems to me the market’s behavior after the debate tells us what it deems important.
My analysis? I didn’t see market activity that could be attributed to the debate. In my view, if investors were concerned about Biden getting elected, the stock market would have crashed on Friday. I also think it would have headed south if investors were really worried about Trump remaining president. To me, the lack of discernable market activity that I can attribute to the debate means investors are not looking at the election results as a driver of future performance.
As I’ve mentioned in the past, I believe the market’s attention is focused instead on Congress passing another stimulus package. I’m not discounting the importance of the presidential election, but I see investors more focused on whether consumers will have money to spend. If the stimulus package gets passed, I think we could see new highs in the market. That’s why I don’t think it’s necessarily a good time to sell your retirement stocks. Instead, I would tend to suggest you keep your eye on the stimulus package, always remembering to be ready to protect your retirement savings should the market come tumbling down. If you’d like to know more about Invest and Protect™, which is RPOA’s investment strategy for retirement planning, we’d love to talk to you.
Ken Moraif, CFP®, MBA
Senior Advisor at Retirement Planners of America