JP Morgan Assets analyzes:
- Why economic angst has contributed to a frustrated electorate
- Why our base case of de facto divided government is what ultimately matters most for markets
- What history tells us about market behavior before, during and after presidential elections
- Why either a President Trump or Clinton will likely face a recession in his/her first term, and how investors should think about their portfolios given where we are in the economic cycle
- We are in the midst of a very unusual U.S. election campaign. But for markets, the impact of the election is likely to be more muted than the campaign hype might suggest.
- While imperfect, our system of divided government helps to ensure that no leader can implement his or her policy ideas unfettered. With our base case one of de facto divided government, markets may well be facing a largely status quo outcome.
- Historical analysis suggests that markets tend to favor incumbent candidates in the months leading up to presidential elections, likely because they represent less uncertainty to investors. However, political considerations have proven to be less of a driver for markets over longer periods.
- Regardless of who wins the election, investors should expect a recession at some point during the next four years. While long-term investors should continue to capitalize on the ongoing expansion for now, it will also be important to establish a plan for the next downturn as the cycle matures.
To be clear, prudence is not to be confused with panic. Neither the prospects for a recession in the coming years, nor the impact of the upcoming election, justify drastic action. Instead, investors should take a disciplined, balanced approach that enables them to stay invested so that they can participate in any upside offered in the late stages of the expansion, while feeling more confident that a market downturn won’t upend their retirement plans.
Review the full commentary from JP Morgan, or read what Lord Abbett says about the candidates' economic policies.