Elections Have Consequences

Many market and economic forecasters like to tie some of their predictions to changes in the political scene, particularly when there is a material change in control.  Typically, projections tend to examine historical market action and compare key data points to the current situation, in an effort to provide insight as to possible future market performance.

This time around, projections are focusing on what has happened in prior periods during which a Republican succeeded a Democrat.  While this kind of activity can provide meaningful insight to investors, it is important be sure that the author(s) are truly comparing apples to apples.

One area for potential misalignment is starting date.  For example, should the Trump era be calculated from his inauguration date, or the day the election results are known?  We now know that the stock market’s initial reaction has been a significant rally.  This suggests that calculations should focus on the period immediately following the day that election results are known.

It is important to note that the stock market tends to be a leading indicator and valuations are an attempt to calculate the discounted or present value of future expectations.

All comments and suggestions are welcome.

Walter J. Kirchberger, CFA®