Investing & The Political Cycle

Market’s don’t like uncertainty because people in general do not like uncertainty.  When your are uncertain a certain degree of fear exists within you and you may become hesitant to take certain risks.  More certainty means your perception of risk is less than it was before.

In the upcoming elections it is expected that the minority party (Republicans) will grab a number of seats in the House and Senate.  The majority (Democrats) currently control the House, Senate and Presidency.  This has caused the markets to react in part because they are uncertain about the legislation/changes that have been able to be passed through both houses of congress and signed into law.

After the election we expect that their will be more parody in the House & Senate.  This will reduce the uncertainty felt in the market because less legislation with significant changes to the way things are should be able to make it into law since their will be more parody per party in both houses.  Even if the minority becomes the majority in either house, they will still find themselves up against a President of the opposing party.

With more parody amongst parties at the Federal level, the likelihood of game changing legislation making its way into law will decrease and thus the level of uncertainty amongst investors will, as well.

Consider how the upcoming election cycle may impact your portfolio.  Use this event as one area that you might want to consider when thinking about strategy or simply identifying certain stocks or funds.