August 16, 2024
Money Education Financial literacy Economy Good reads News TrendingElection Misconceptions
The noise can be deafening. It seems to come from everywhere, all the time. It can cause headaches, frustration, even anxiety. Sometimes, you wish you could turn it off altogether.
No, we not referring to whatever music the kids are listening to these days. We are referring to the noise from politicians, at home and abroad, as elections approach in an increasingly politically fractured world.
More than half the world’s population across more than 80 countries will be eligible to cast a vote in 2024.1 Our own elections will likely be next autumn, and the politicking has already begun. Many Canadians are also watching polls warily as our neighbor to the south prepare for their presidential election. Market volatility in the U.S. does sometimes cause our markets to fluctuate, and whichever candidate U.S. voters choose could have an impact on trade.2 While the future is uncertain, we don’t necessarily need to buckle up for a bumpy ride. As your financial advisor, it’s our job to help you feel confident in your financial future, not anxious. So, in this letter, let’s do a brief dive into three misconceptions about elections and the markets.
First, for those fearing possible effects of the U.S. election, there’s a misconception that U.S. presidential elections lead to down years in their markets—and ours by proximity. But looking back on past U.S. elections, it’s clear that the headline hypotheticals typically make more of a ripple than a splash on markets.3 For example, in 2016, the election was barely a blip on the S&P/TSX: a drop and recovery of hardly more than 1% in the week before and after election day. In 2020, the market dipped slightly—1.8%—from the week prior, but had more than recovered by the week after.4 As for how much what happens on Wall Street steers market performance in Canada, chances are we’ll see very little impact. While it’s true that our markets are tied somewhat to those of our cousin down south, much of our economic performance depends on what we do within our borders. Though our economy has been sluggish, signs point to positive gains throughout 2024.5
Now we do sometimes see increased volatility in the months leading up to an election, in the U.S. or here. Our view is that most pre-election volatility comes from uncertainty over which candidate will triumph – and what the winner’s policies will mean for the global economy. As the victor is announced, and the picture becomes a little clearer, volatility tends to subside, and investors move onto other things. Elections are just one of the many ingredients in the gigantic stew that is the stock market…and they’re far from the most important.
The second misconception is that any one leader controls whether the market rises or falls. Whether that leader is here or abroad, economies are complex things, driven by myriad factors regardless of who is in power. When you think about it, the markets are like life. The course our lives take isn’t determined by one gigantic decision, but by the millions of small decisions we make every day. The same is true for the markets. I don’t know about you, but we find this comforting.
The third misconception is that we have no control over any of this, and thus, no control over what happens to our portfolio. It’s true we can’t dictate who the American president will be. We can’t determine how the markets will react. But what we can control is what we will do. And that is a mighty power indeed.
There’s a reason we began this letter by referencing noise. As investors, one of the keys to long-term success is filtering through the noise and focusing on what really matters. You see, the goal of all political campaigns – and the media that covers them – is to create noise. That’s because noise provokes emotions. Fear. Anxiety. Anger. A greater emotional response leads to more clicks, more views, more shares, more engagement…and yes, more money. It’s understandable why campaigns and the media want these things. But what we must guard against is when those emotions drive our financial decisions. Emotions promote the urge to do something – buy, sell, get in, get out, take on more risk, less risk, you name it. They prompt us to make short-term decisions to alleviate what is, when you think about it, a short-term concern.
Elected officials come and go. But the goals you have saved for, and the time horizon you have planned for, last longer than any news cycle. That’s why our investment strategy is built around the long-term. It’s designed to help you not just tomorrow, or next month, but years and years from now.
The bottom line is to tune out the noise. Remember these misconceptions and avoid them. And most of all, remember that our team are here to answer your questions and help you however we can. Please let us know if there is ever anything we can do.
Sincerely yours,
Omell Financial Group
1 “Elections tracker 2024: Every vote and why it matters,” The Guardian, https://www.theguardian.com/world/2024/feb/23/2024-global-elections-tracker-voting-dates-us-india-indonesia-belarus-haiti-pakistan-full-list
2 “How the U.S. election could impact Canadian companies,” Export Development Canada, https://www.edc.ca/en/article/united-states-election-impact-canada.html
3 “Election year market patterns,” ETRADE, us.etrade.com/knowledge/library/perspectives/daily-insights/election-stock-patterns
4 “S&P/TSX composite index,” 1 November 2016-15 November 2016; S&P/TSX composite index, 27 October 2020-10 November 2020. https://www.investing.com/indices/s-p-tsx-composite-historical-data
5 “Deputy Prime Minister welcomes International Monetary Fund’s positive review of Canadian economy,” Government of Canada, https://www.canada.ca/en/department-finance/news/2024/06/deputy-prime-minister-welcomes-international-monetary-funds-positive-review-of-canadian-economy.html
Sourced from Bill Good Letters Library
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