If you listen to the political pundits, you would think America’s future hangs in the balance every time there is an election.
The amount of talking may be slightly lower this year since it’s what’s called a “midterm” election, but expect the political momentum to build up until Tuesday, November 3, when we head to the polls.
All 435 seats in the House of Representatives and 35 of the 100 Senate seats will be decided, along with 39 governors and a long list of state and local races. Senators serve six-year terms, so roughly one third of the Senate is up for reelection in any given cycle.
The outcome will help shape the priorities in Washington for the next two years, but it is important to separate what it means for the country from what it means for your portfolio.
The Cycle of Elections
Midterm election cycles often follow a similar path. The party in power warns that losing seats would be a setback. The party out of power insists that gaining seats is essential. Voters get overwhelmed with information for months, and then the information flow comes to a screeching halt after the polling place closes.
But remember: Congress moves slowly by design.
A change in control of the House or Senate rarely translates into an immediate policy shift, since new legislation still has to move through committees, floor votes, and often a conference process before it gets any consideration.
This gap between an election result and any real-world impact on markets tends to be far wider than the headlines imply. This holds regardless of the outcome.
What Drives Markets?
The financial markets tend to respond more to economic forces, such as interest rates, inflation, corporate results, employment trends, and global events. The midterm election results often get the headlines but then step into the background for some time.
However, it is important to acknowledge that the emotional outcome of an election is real.
Many people feel relief or concern depending on the results. That’s part of the process. In contrast, a portfolio may only need to change if you have a new goal you want to pursue, or if a life change shifts your time horizon or risk tolerance. Yielding to the temptation to move money out of the market before or after an election can hurt more than it helps.
It’s All About the Waiting
Charlie Munger, who’s perhaps best known as the business partner of Warren Buffett, would often say, “The big money is not in the buying and selling, but in the waiting.”
So, if you find yourself getting anxious as we get closer to the election, remember what Charlie taught us. Waiting can be the best approach in a world filled with uncertainty.
