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Stick to investment strategy; be skeptical of politics and elections

Congratulations.  You’ve survived another election. The morning after Election Day, the S&P 500 dropped 1.9%. Many market watchers attributed the fall in stock indexes to election results that the market perceived as unfriendly to Wall Street.

I’m often baffled by these sorts of stories. First, a drop of a couple of percentage points isn’t hugely significant. I feel like the reporters had two versions of this article sketched out the day before, then filled in with a couple of quotes and called it day.

One article I read, from CBS News, included this perspective: “Historically, the stock market has performed well both after midterms and also when the government is divided between parties.” The thinking is that a gridlocked Washington has a difficult time enacting legislation that harms the markets. I’d counter that even when one party controls both the House and the Senate, it’s difficult to pass any legislation.

Beyond a midterm election, I’m also skeptical of any analysis of how the markets do when Republicans are in the White House versus Democrats. One of the most vicious arguments I ever witnessed between financial professionals was about which party was better for the markets. Each one was armed with data they felt was unimpeachable.

But if they had taken a step back, they might have acknowledged that looking at historical data meant nothing. Presidents are products of their time and shape policies based on what’s possible and popular during their administration; they don’t do it based on what their party platform was 20 years ago. It’s awfully difficult to create a great study under those conditions.

So I don’t find much predictive value in elections. Any anticipation of potential legislation in Congress has so many unknowns. Once lobbyists get in the room to craft a bill, and various voting factions are able to negotiate carveouts and provisions, the legislation you thought you were going to get often is far different.

Then there are the unintended consequences of legislation. For example, sometimes people call for price controls of certain goods when they become expensive. But capping prices might lead producers might restrict supply of those goods, causing shortages.

Take oil, for example. In an extreme example, if the government decided that American oil companies couldn’t charge more than $30 for a barrel of oil in an effort to keep gas prices down, American oil producers likely wouldn’t supply much oil – they’re probably losing money on new oil projects. The unintended result could be a shortage, putting more pressure on prices.

You might be disappointed or elated at the results of the recent midterm. Though it’s easy to get caught up in the emotion of politics, don’t let it play too much of a role in your investing. There are just way too many unknowns to anticipate legislative changes. Good companies with strong management find ways to persevere and thrive, so focus your attention on ones whose stocks are selling at reasonable prices and you’ll be fine.

Evan R. Guido is the founder of Aksala Wealth Advisors LLC, a 2018 Forbes Next-Gen Advisors List Member, and Financial Professional at Avantax Investment ServicesSM. Evan heads a team of retirement transition strategists for clients who consider themselves the “Millionaire Next Door.” He can be reached at 941-500-5122 or Read more of his insights at Securities offered through Avantax Investment ServicesSM, member FINRA, SIPC. Investment advisory services offered through Avantax Advisory ServicesSM, insurance services offered through an Avantax affiliated insurance agency. 6260 Lake Osprey Drive, Lakewood Ranch, FL 34240.

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