Pricing in politics and election anxiety
Conventional wisdom holds that the stock market today reflects the general economic environment expected in six months or so. If the premise is true, then investors already have anticipated who will be president on Inauguration Day in January 2021.
But, of course, no shareholder knows.
The race for the White House enters its last stage in the week ahead. Vice President Joe Biden will accept the Democratic presidential nomination on Thursday night, Aug. 20. President Donald Trump will do the same with the GOP one week later.
The formal nominations and acceptances are without suspense. But they will focus investors on the uncertainty and divisiveness ahead. Political uncertainty is a fact of life for markets. Political uncertainty during a pandemic and the resulting unprecedented economic freefall is something else entirely.
Politics don’t drive investment results, though. Policies do. This is not a case of one political ideology being more profitable for shareholders than another. Long-term investors are smarter than to buy into rhetoric. Still, the uncertainty will feed volatility in the short-term and add to a nervous market environment.
Where the election anxiety will be more prominent is in the real economy. It threatens the fragile confidence in an economic recovery. Americans are finding work again, though much slower than they lost work in the spring. Home sales have regained about half of the pandemic-fueled drop. These actions — creating a job, buying a home — require a great deal of optimism, and they fuel consumption that underpins the economy.
These are hopeful signs, but they will be tested by what will be a capricious election season.
Tom Hudson hosts “The Sunshine Economy” on WLRN-FM, where he is the vice president of news. Twitter: @HudsonsView
