US election: stockmarkets don’t care who’s in the White House

The economic cycle and America's central bank have a much bigger effect on long-term stockmarket returns than whether Democrats or Republicans are in power.

“No stimulus, no problem,” say William Watts and Sunny Oh for MarketWatch.com. This week Democrats and Republicans continued to discuss another stimulus package, but the odds of any deal before the election looked increasingly remote. 

Nevertheless, bulls have decided that the American consumer can probably hold on until 2021 even without further help. Retail sales rose by 1.9% in September, the fifth straight month of gains. 

That news cheered the S&P 500, which continues to trade about 3% short of its early September highs. Benefits from the $2.2trn CARES act, America’s pandemic stimulus package, ebbed over the summer, but that has yet to curb the enthusiasm of American consumers. That is because many households have a financial cushion, says Nathaniel Meyersohn for CNN Business. The US personal savings rate hit the highest level since 1981 in March. 

Stockmarkets appear to be positioning for a “blue wave” that will bring Democrats to power in the presidency and Congress, paving the way for more generous stimulus measures in January next year. Analysts say that a Democratic sweep would mean more regulation for energy, financial and healthcare businesses, while extra stimulus will boost construction and renewable energy shares, says Michael Mackenzie in the Financial Times. US presidential elections always create “anxiety and volatility” in markets, but long-term investors should “ignore the short-term market noise”. 

The economic cycle and the Federal Reserve have a much bigger impact on long-term returns than whether Democrats or Republicans are in power. The S&P 500 is up by 53% since Trump took office. Under Obama it bounced by 71% and it rose even more under Reagan.

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