Politics is important to investing. But perhaps not in the way some people imagine.
To be sure, the post-Labor Day sprint for the White House is one of the reasons the market has been so choppy over the past month.
(The run-up to the Federal Reserve’s first rate cut has also contributed.)
You can clearly see this in a chart of the VIX – the Chicago Board Options Exchange’s Volatility Index – which is the most widely used measure of volatility in the market.
That big spike you see in August was when the market sold off on a worse-than-expected monthly employment report. But since then, other employment data has countered that. And the index has remained higher than it was for most of the previous eight months – as investors grow increasingly nervous about the coming election and its potential fallout.
Mixed Results
There’s solid evidence that neither Democratic nor Republican governments are best for the market.
In fact, divided government is best. That is, stocks perform best when the federal government is split, and legislation is more difficult to enact.
Divided government puts an effective check on extreme policies that can negatively impact stocks, from imprudent tax cuts to big spending increases to overly political regulation or deregulation.
Since 1948, the average annual return for the Dow was almost 13% when Congress was split, versus about 8% when unified.
Let’s all hope for a divided government after this coming election… because this time around, both presidential candidates and both political parties are pushing populist economic ideas that would be terrible for the economy and the market.
(For more on this, see my Liberty Through Wealth column from September 11.)
Betting on the Election
But if you’re determined to make money on an election outcome, you may soon be legally able to do so. This month, a U.S. District Court gave a trading platform named Kalshi the go-ahead to take bets on which party will win the House and Senate.
Though that ruling was soon thereafter blocked by an appeals court and remains blocked for the moment, it seems like it’s only a matter of time before gambling on politics is legal.
So fine, bet a few bucks on blue or red if you’re so inclined.
But don’t invest real money in either party, and don’t buy into apocalyptic predictions of economic collapse should one candidate or the other prevail. Politics aren’t investing and you’re certain to lose money if your portfolio takes on a political slant.
Trump Media & Technology Group (Nasdaq: DJT) is excellent evidence of that. In late March of this year, the company essentially went public by merging with a Special Purpose Acquisition Company – and started trading under the ticker symbol DJT.
Enthusiasm for former president Donald Trump quickly drove the shares above $65. Yet the company’s lack of solid fundamentals and revenue, plus Trump’s drop in national polls, have sent it back to below $20.
So sure, bet a few bucks on a candidate or party – if and when such wagering becomes legal.
But keep politics out of your portfolio.