President's Letter - How Does Politics Influence the Market?


It would seem incredibly stupid to try to convince you that politics and the markets have no relationship. Clearly it seems that, now more than ever, what is happening in Washington D.C. is impacting what happens with the Dow. Confidence in the economy is also a critical factor that influences the markets and the actions of Congress and the President (as well as his advisors) can move the market at any time.

Each month Spectrem has been tracking the attitudes of investors regarding their election opinions and the impact that politics is having on their investment behavior. Obviously, in the past six weeks, the Coronavirus has had a greater impact on their attitudes than the election. It’s interesting to note, however, that as the U.S. moves to the next phase of our journey through the pandemic, the financial attitudes of investors are still highly influenced by political affiliation. The details are available in our free report: A Guide for Financial Advisors in 2020: Investors and the Election.

While most investors believe the U.S. economy will experience a recession this year, those attitudes vary greatly based upon political affiliation. Overall, almost three-quarters of investors expect a recession, however, when you view these attitudes by political affiliation you can see that 86 percent of Democrats believe there will be a recession compared to only 61 percent of Republicans. Independents are in the middle at 74 percent.

Similarly, when asked how long do they anticipate it will take for the U.S. economy to recover after the pandemic, Republicans are much more optimistic than Democrats. Almost half of Republicans believe the economy will recover within a year. Not surprisingly, Democrats are much less optimistic.



Why is this important to financial advisors? Because it’s important to be able to gauge the level of optimism your clients may have regarding a recovery and be able to address their questions and investment desires. Another important issue, however, is that REGARDLESS OF ONE’S POLITICAL AFFILIATION MOST INVESTORS INVEST THE SAME!

While one’s political attitudes may taint one’s level of political optimism, seldom does it make a difference in individual investment decisions. Overall individuals invest similarly. Above you can see the overall distribution of assets and a breakdown by Investable Assets for Republicans vs. Democrats. While not identical, the differences are somewhat minimal.

Isn’t it possible that if we could get past the vitriol that we would find that most people feel similarly about a lot of issues that are important in our lives? Not just investments - but other values? Instead we focus on whatever the media sees as important each day.

Important thoughts to keep in mind as we push through the pandemic, the recovery, and the volatile year of 2020.