Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 382

Capital Group: What the U.S. election means for investors

Key takeaways

  • Investors should prepare for higher market volatility in the aftermath of Election Day.
  • Patience is key as the outcome of the U.S. presidential race may not be known for days or weeks.
  • Republicans will likely hold the Senate, resulting in a split Congress, an outcome that has historically resulted in higher market returns.
  • Despite the uncertainty, investors should remember that company earnings, not elections, drive the stock market.

The uncertainty of 2020 continues.

After turning out in record numbers on Election Day, U.S. voters have yet to see a winner declared in the U.S. presidential election. In a race that has proved to be much closer than many polls had predicted, the final outcome may remain unknown for days or even weeks.

“Patience will be the key to getting through this period of political uncertainty,” says John Emerson, Vice Chairman of Capital Group International and a former U.S. Ambassador to Germany. “There are literally millions of votes that have yet to be counted — including a large number of mail-in ballots — so a delay is not that surprising. We’ve been warning about this scenario months.”

From an investment perspective, it is likely that market volatility will persist at elevated levels until President Donald Trump or former Vice President Joe Biden is declared the winner. U.S. equity markets staged a strong rally on Election Day, with the S&P 500 Index rising 1.8%. Treasuries rallied, partially on the view that a split government could curtail prospects for excessive fiscal stimulus.

“There’s understandably a lot of anxiety right now,” Emerson adds, “But investors should think hard about adhering to their long-term investment goals, rather than reacting to near-term political events. That is often a mistake.”

Over the course of history, markets have powered through contested presidential elections, deadly pandemics and economic recessions — usually not all in the same year — but they have powered through, nonetheless. Whether a Democrat or a Republican occupies the White House has made little difference to overall long term investment returns.

Where do we go from here?

The stage has been set for vote-counting battles, and a flurry of lawsuits, in swing states that have not yet been called for Biden or Trump. Those states include Pennsylvania, Nevada, North Carolina and Georgia, according to The Associated Press.

“Thursday or Friday is probably the earliest we will know the preliminary vote results for each state, depending on the looming litigation,” says Matt Miller, a political economist and policy analyst with Capital Group. “The presidency could go either way in the fraught period ahead.”

The nation essentially remains just as divided as it was four years ago when Trump unexpectedly won the 2016 election. Miller notes, “Whoever wins this election will have the daunting task of trying to bring unity and healing to a nation that is split right down the middle.”

In other races, it appears that Republicans will continue to hold a majority in the U.S. Senate, Miller says, while Democrats will maintain control of the House of Representatives, resulting in a split Congress. That’s been the case since the 2018 midterm elections when Republicans lost the House. Coincidentally, according to our analysis, markets have performed best under a split Congress.

Two key issues in the race

The U.S. economy and the coronavirus outbreak were the top two issues in the presidential contest, according to most polls. Trump was generally viewed unfavorably for his handling of the pandemic, while voters gave him higher marks for his economic policies. The U.S. fell into a recession earlier this year, as government-imposed lockdowns brought economic activity to a near standstill.

However, in the most recent measure of U.S. economic activity — released just five days before the election — U.S. GDP growth bounced back sharply, rising at a 33.1% annual rate, benefiting from pent-up consumer demand and massive government stimulus measures. A key driver has been U.S. home sales, which have benefited from rising demand and historically low mortgage rates.

Despite extreme volatility during the year, U.S. equity markets also have trended upward. On a year-to-date basis to October 30th, the S&P 500 Index gained 2.8% as technology and consumer-tech stocks rallied amid the lockdowns.

“The near-term performance of the economy and the markets may have played a role in this election but, realistically speaking, presidents get far too much credit when things go right and far too much blame when things go wrong,” says Capital Group economist Darrell Spence. “For the most part, the dynamics that contribute to economic growth and market returns are put in place long before the election and they remain long afterward.”

“As investors, we try to focus on the underlying fundamentals that are driving the economy and corporate profitability,” Spence notes. “That often has very little to do with who happens to win an election.”

 

John Emerson is Vice Chairman, Capital Group International. Matt Miller is a political economist and Darrell Spence is an economist and research director at Capital Group, a sponsor of Firstlinks.

For more articles and papers from Capital Group, click here.

 

RELATED ARTICLES

MFS Investments: Blue wave fails to reach shore

Perpetual: Biden impact not as important as China for Australia

The 2020 US presidential elections

banner

Most viewed in recent weeks

Retirement is a risky business for most people

While encouraging people to draw down on their accumulated wealth in retirement might be good public policy, several million retirees disagree because they are purposefully conserving that capital. It’s time for a different approach.

The perfect portfolio for the next decade

This examines the performance of key asset classes and sub-sectors in 2024 and over longer timeframes, and the lessons that can be drawn for constructing an investment portfolio for the next decade.

UniSuper’s boss flags a potential correction ahead

The CIO of Australia’s fourth largest super fund by assets, John Pearce, suggests the odds favour a flat year for markets, with the possibility of a correction of 10% or more. However, he’ll use any dip as a buying opportunity.

The challenges with building a dividend portfolio

Getting regular, growing income from stocks is tougher with the dividend yield on the ASX nearing 25-year lows. Here are some conventional and not-so-conventional ideas for investors wanting to build a dividend portfolio.

How much do you need to retire?

Australians are used to hearing dire warnings that they don't have enough saved for a comfortable retirement. Yet most people need to save a lot less than you might think — as long as they meet an important condition.

Welcome to Firstlinks Edition 594 with weekend update

It’s well documented that many retirees draw down the minimum amount required and die with much of their super balances untouched. This explores the reasons why and some potential solutions to address the issue.

  • 16 January 2025

Latest Updates

Investment strategies

UniSuper’s boss flags a potential correction ahead

The CIO of Australia’s fourth largest super fund by assets, John Pearce, suggests the odds favour a flat year for markets, with the possibility of a correction of 10% or more. However, he’ll use any dip as a buying opportunity.

9 ways to fix Australia's housing crisis

Decades of policy failure have induced a fall in housing affordability. Unless painful changes are made, an underclass will emerge in a society that is supposed to boast the one of the world's highest standards of living.

Shares

Australia: why the chase for even higher dividend yields?

Australia boasts one of the world's highest dividend yielding sharemarkets, providing substantial benefits to investors and retirees. Despite this, individuals often stretch for even more yield, to their detriment.

Shares

MIGA – Make Income Great Again

The Australian sharemarket seems to be rewarding a number of unprofitable companies on the promise of future riches. Yet profits and cashflows still matter, as a recent case study of Domino's Pizza shows.

Shares

Mapping future US market returns

Exceptional returns from the US sharemarket over the past decade have driven by sales growth, margin expansion, rising valuations, and dividends. Predicting future returns requires careful consideration of these factors.

Shares

Read this before you go all in on US equities

US equities rule global markets, but history is littered with examples of markets that seemed invincible — until they weren’t. Diversification will be key for investor portfolios going forwards.

Property

What impact would scrapping stamp duty have on housing?

Increasing house prices pose challenges for housing affordability. This investigates the impact of stamp duty on the property market, and how removing the tax could help address several key issues.

Sponsors

Alliances

© 2025 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. To the extent any content is general advice, it has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.