With election season in full swing, it is natural for investors to feel uncertain about what is ahead and tempting to move to the sidelines until the dust settles. But history shows that staying invested, regardless of the political climate, is one of the most important decisions you can make for your long-term financial success. Market volatility tied to elections is often short-lived, and stepping out of the market even briefly can mean missing critical days of growth. For a deeper look at the upcoming election, we encourage you to read more from our strategic partners at Capital Group.
“With the U.S. midterm elections just around the corner, I am asked multiple times a day by colleagues, clients and friends how I think this pivotal contest is going to turn out. It’s my job after all to provide political analysis and public-policy research to Capital Group’s investment team — with an emphasis on analysis, not advocacy, as I always stress.
So, with that in mind, here are three insights I’ve been sharing as we count down to Election Day. Politics is never an exact science, but this is my assessment of the potential outcome and what it could mean for investors.
1. Democrats will win the House, but don’t expect a blue wave.
Contrary to an increasingly popular narrative in the news media, I don’t think we are going to see a “blue wave” of Democratic Party victories across the country. In my view, it’s going to be much closer. When all the ballots are counted, I think Democrats will regain control of the House of Representatives by a narrow margin, but I also believe the Republican Party will maintain its majority in the Senate.
2. Affordability is the issue that will decide this election.
The affordability crisis, runaway inflation, the high cost of living — call it whatever you like — the rising price of virtually everything is the most important issue in this election. It’s the same issue that caused Democrats to lose the 2024 election. Voters are angry about rising consumer prices, and they are expressing their anger at the ballot box.
3. The result will be political gridlock — and political theater.
If I am right and Democrats regain control of the House only, that’s all it will take to return Congress to a state of political gridlock. We will have a divided government. That means Congress won’t be able to achieve much on the legislative front over the next two years. We should also expect debt limit and budget standoffs to rattle markets temporarily.
On the investment front, the good news is that U.S. stocks tend to do well once the uncertainty generated by the midterms is over. Since 1950, the S&P 500 Index has returned 15% on average during the 12 months following midterm elections. This year, the S&P is already up about 12% on a year-to-date basis, as of October 19. That doesn’t mean we won’t experience a downturn at some point, but it has proven that this year has already produced substantial returns despite the unpredictability of the election environment.”
Click here to read the full article from Capital Group.
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