Some Things Won't Change After Election Night

The Weekend Edition is pulled from the daily Stansberry Digest.

Three days and counting...

Election Day in the U.S. is just a few days away. Early voting is available in many states... And Democrats and women have led the nation in taking advantage, according to University of Florida data.

Reasonably, this could be a signal of high voter turnout by Kamala Harris' supporters. If you're short-term trading or betting on the election, that might interest you.

But if you're a long-term investor, I encourage you to think differently...

It's true that the outcome of the race for the White House will be consequential politically and even culturally for the U.S.

But the election's influence on the long-term direction of markets might not matter as much – or at least, not in the way many people might think...

You see, both Harris' and Donald Trump's economic proposals – in different ways – are assuredly going to lead to a similar, significant result: adding to the federal deficit, piling on to Uncle Sam's debt issues, and fueling inflation down the road.

I'm reminded today of "betting on things that never change" as a long-term investing concept. Around elections – or anytime when emotions are high and you aren't quite sure what's going to happen next – thinking about what won't change is a good idea.

Today, that means betting on more government spending in one way or another.

And that, in turn, means hedging inflation... by owning shares of high-quality businesses (remember, stocks are an inflation hedge) and "hard assets" like gold.

That said, expect volatility in the next few weeks...

Today's headlines and historical indicators don't match up.

If you pay attention to financial headlines or political polls, you'll see a theme of claims that momentum is in Trump's favor. I've seen enough analysts looking at stocks' rise lately and pointing to the trend as evidence that the market expects Trump to win a second term...

However, I can't shake the "presidential-election indicator." History suggests when the market is up in the months leading up to Election Day, the incumbent or incumbent party is more likely to win the White House.

Specifically, if the U.S. benchmark stock index has been up from July 31 to October 31, the incumbent president or party has won the White House more than 85% of the time since 1928.

The link, if you need to make one, is that a rising stock market means the economy isn't in shambles or a recession, so folks have fewer reasons to kick out the current president or their party.

History, if it doesn't repeat, often rhymes. In the 23 presidential elections since 1928, 14 were preceded by stock market gains in the three months prior. In 12 of those 14 instances, the incumbent (or the incumbent party) won the White House.

Conversely, in eight of the nine elections preceded by three months of losses, incumbents were sent packing. This was the case in 2020, albeit by the most razor-thin of margins. That year, the S&P 500 Index lost a slim 0.04% between July 31 and October 31.

This year, the S&P 500 rose more than 3% from July 31 to October 31. So this indicator suggests a Harris win.

Here's another indicator worth thinking about...

Since 1932, the incumbent or incumbent party has never failed to win reelection unless a recession occurred during the current presidential term. (Recall that we faced a brief recession in Trump's term amid the onset of the pandemic.)

Now, you can debate whether that has been the case this time around...

After all, inflation-adjusted U.S. GDP did contract for two straight quarters in 2022 during Democratic President Biden's term. But the powers that be never called an "official" recession because the unemployment rate was so low.

So, while there is room for argument about a recession, Mr. Market doesn't necessarily care what I think.

This is all to say that some strong market history suggests Harris is due to win...

I'm not making a bet on it because I'd rather put money to work elsewhere. But if Harris does win, the market could be in for (downward) volatility afterward, given the reported belief about expectations for a Trump victory being "priced in."

If you're a long-term investor, you should be aware of this – a sell-off could present a buying opportunity.

But also remember what won't change no matter who wins the White House. Hedge your portfolio against inflation... and maybe some "chaos" too.

As a practical matter, the composition of Congress will also matter just as much as who wins the White House...

Depending on the outcome of the congressional races, presidential agenda items could be moot points for at least the next two years.

Then again, even a "sweep" of Congress by either side may not matter as much as you might think it would over the long run. Here's one of my favorite stats on this subject, courtesy of our Dr. David "Doc" Eifrig...

Since 1926, the U.S. has had 13 years of unified Republican government (with the GOP simultaneously holding the House, Senate, and presidency). In those years, the market returned an average of 14.52% per year. There have also been 34 years of unified Democratic government. In those years, the market returned an average of... 14.52%.

The machinations of the Federal Reserve, the economy, and the thousands of businesses and millions of individuals wash out most of the effects a president might have on the stock market. Sometimes, something like a big tax cut can boost stocks, but that's a rarity.

What's more, some folks favor a split Congress – with one party controlling the Senate and the other the House – because it means significant legislative changes are less likely. That stability can be bullish for stocks.

We'll be waiting on those outcomes after Tuesday night, too. Prepare accordingly...

Good investing,

Corey McLaughlin

Editor's note: We can't predict who will win the White House... or how markets will respond in the aftermath. But according to Joel Litman, founder of our corporate affiliate Altimetry, you can come out on top as an investor – regardless of who wins – using one time-tested election trade.

Joel recently stepped forward to share why one part of the market could get a huge tailwind from either candidate – likely within the opening weeks of the next presidency... Watch his message right here.