Three things happen every four years. The first is the Summer Olympics, which started in 700 B.C. and was reborn as the modern Olympics in 1896. The Winter Olympics would not start until 1924. The second is a Leap Year.  In 45 B.C. Julius Caesar came up with the rule that every four years we would add a leap day to February to try to keep our calendar consistent with the seasons. About 1600 years later, the Catholic Church noticed that Easter and the Vernal Equinox (Spring Equinox) were drifting apart, so they added another rule that skips leap years every 400 years or so. Don’t worry; the next leap year we skip won’t be for another 76 years. Finally, given our country’s founding in 1776 (a leap year), the U.S. presidential race also occurs every four years, during the same year as the Olympics and the Leap Day. In just a few months’ time, we will select our next President of the United States. As I have had a lot of questions regarding the upcoming election, I thought it might be a good idea to give you our thoughts on it from an investor’s point of view.

Before we dive in, I’d like to address the point I hear a lot regarding the election: that “it’s different this time.” Which is, of course correct; we’ve never had the election we are about to go through, but that is also true of every previous election. While this election is different, we should still look to how financial markets viewed previous presidential elections as a guide.

The reality is while markets pay attention to presidential elections, they are rarely moved by them much. Certainly, some market participants will try to “hedge their bets” beforehand in case their side loses, but these tend to be not market moving. After the election, there can be a knee-jerk reaction where the losing side views disaster coming and leaves the markets, but that is usually offset by participants on the winning side moving in. While, to some, it may be tempting to make large trades right before or after November 5th, it is rarely a good long-term strategy.

After the election dies down, then we move into policies. Presidential candidates throughout history like to talk about all sorts of policies they want to enact. They range from the sensible, to more often than not, to the outlandish. But as the very old joke goes, “How can you tell if a politician is lying? Their lips are moving.” In today’s world, our memories are very short, somehow made shorter by social media, and not many politicians are held to their campaign promises. Even if they are, there are a few very big complications to navigate through to get those policies and promises enacted. Those complications include both houses of Congress and the U.S. court system.

Starting with the U.S. Congress, it appears, as of now, that the likelihood of both houses of Congress and the President being of one party is fairly low. Compromises will have to be made, watering down any grand promises made on the campaign trail. Even if one party were to sweep everything, they are not likely to have such a large majority to ignore the moderates within their own party and enact sweeping changes. Then comes the U.S. court system, which takes time and effort (and money) to get anything through, further delaying changes.

Of course, some changes will be enacted. Executive orders will still be issued, and some campaign promises will be fulfilled, although maybe not to their fullest extent. So, what are investors to do as they face the coming election? The first answer is, of course, to research and VOTE, especially on the “down-ballet” issues and candidates. It is sometimes easy to get caught up in the circus that is the presidential race and forget that your local candidates often have more of an effect on your daily life. After that, we must look at the long-term effects of the policies that are enacted and try to glean from them who will be the winners and losers in the financial markets. That is our goal here at Sullivan & Associates; whoever comes out a winner in November, our goal is to try to place our clients in the best position to either weather the storm or ride the wave.

Stepping away from politics, one significant change happened in the last quarter. The United States Federal Reserve lowered interest rates for the first time since March of 2020. Typically, interest rate movements take around nine months to fully move through the economy. Although this has had a more immediate impact on fixed income securities and money markets, we currently see the likelihood of further cuts before the end of the year to be high.

As always, we appreciate your trust, and if you have any concerns or questions, please don’t hesitate to reach out.

Kevin P. Sullivan, CFA, CFP®, AIF

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