The recent market volatility is due to many factors: Federal Reserve policies, earnings from key companies and the analysis of multiple analysts and pundits who share their opinions on cable news. But one of the factors that also influences the markets is the opinion of investors – both individual and institutional. (It’s always important to remember that institutional investors are ultimately individuals.) It would be foolish to believe that the upcoming election does not have an influence on investor feelings about how the market will react to the results of the election.
In research just completed by Spectrem Group, affluent investors (those with $100,000 to $25 million of net worth) were asked if they believed the Republicans would continue to control the House of Representatives after the upcoming election or if the Democrats would gain control of the House. The results were close (just outside Spectrem’s 3% margin of error). Fifty-two percent of investors believe the Democrats will gain control of the House of Representatives and 48% believe that the Republicans will maintain control.
Respondents were then asked how they felt the U.S. stock market would react based upon the various outcomes. Overall, while 28% of investors felt the stock market would remain at the same level if the Democrats gained control of the House of Representatives, 47% felt the market would lose its momentum and fall. Twenty-five percent felt the market would maintain its momentum and continue to rise if Democrats gained control of the House. In contrast, 46% of investors felt that if the Republicans were able to maintain control of the House of Representatives the market would maintain its momentum and continue to rise. Twenty-five percent felt that a Republican win would cause the market to fall and 29% felt the market would remain the same if the Republicans retained control.
Not surprisingly, political affiliation played a significant role in investor’s attitudes. Seventy-nine percent of Republicans felt their party could maintain control of the House. Eighty-three percent of Democrats believe they will gain control of the House. Forty-two percent of Independents believe the Republicans will win and 58% of Independents believe the Democrats will gain control of the House. It goes without saying that 42% of Democrats believe the market will maintain its momentum and continue to rise if they should win the House while 75% of Republicans believe the market will fall and lose momentum should the Democrats win. Interestingly, 46% of Independents feel the market will fall if Democrats should win compared to 27% of Independents who feel the market will fall if the Republicans should maintain control.
It’s interesting to note that while investors’ responses to the questions above did not vary significantly by wealth level, there were large differences based upon age. Sixty-five percent of investors under the age of 35 felt that the Republicans are likely to maintain control of the House of Representatives compared to only 46% of those over the age of 71. But should the Democrats win control of the House, only 18% of those under the age of 35 believe the stock markets will lose momentum and fail. In contrast, 47% of those over the age of 71 and 50% of those over the age of 52 believe the market will fall should the Democrats win the House. Is this the innocence of youth? Or does it show that younger investors have more confidence in the markets than older investors?
Whatever the outcome may be, most investors certainly feel their investments are likely to be impacted by the outcome of the midterm election. It’s time for financial advisors to discuss the impact of the election on the markets with their clients. (Note that advisors have reached out to only 18% of investors regarding the potential impact of the election on the stock market). Reach out today.
© 2018 Spectrem Group