Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 382

Capital Group: What the U.S. election means for investors

Key takeaways

  • Investors should prepare for higher market volatility in the aftermath of Election Day.
  • Patience is key as the outcome of the U.S. presidential race may not be known for days or weeks.
  • Republicans will likely hold the Senate, resulting in a split Congress, an outcome that has historically resulted in higher market returns.
  • Despite the uncertainty, investors should remember that company earnings, not elections, drive the stock market.

The uncertainty of 2020 continues.

After turning out in record numbers on Election Day, U.S. voters have yet to see a winner declared in the U.S. presidential election. In a race that has proved to be much closer than many polls had predicted, the final outcome may remain unknown for days or even weeks.

“Patience will be the key to getting through this period of political uncertainty,” says John Emerson, Vice Chairman of Capital Group International and a former U.S. Ambassador to Germany. “There are literally millions of votes that have yet to be counted — including a large number of mail-in ballots — so a delay is not that surprising. We’ve been warning about this scenario months.”

From an investment perspective, it is likely that market volatility will persist at elevated levels until President Donald Trump or former Vice President Joe Biden is declared the winner. U.S. equity markets staged a strong rally on Election Day, with the S&P 500 Index rising 1.8%. Treasuries rallied, partially on the view that a split government could curtail prospects for excessive fiscal stimulus.

“There’s understandably a lot of anxiety right now,” Emerson adds, “But investors should think hard about adhering to their long-term investment goals, rather than reacting to near-term political events. That is often a mistake.”

Over the course of history, markets have powered through contested presidential elections, deadly pandemics and economic recessions — usually not all in the same year — but they have powered through, nonetheless. Whether a Democrat or a Republican occupies the White House has made little difference to overall long term investment returns.

Where do we go from here?

The stage has been set for vote-counting battles, and a flurry of lawsuits, in swing states that have not yet been called for Biden or Trump. Those states include Pennsylvania, Nevada, North Carolina and Georgia, according to The Associated Press.

“Thursday or Friday is probably the earliest we will know the preliminary vote results for each state, depending on the looming litigation,” says Matt Miller, a political economist and policy analyst with Capital Group. “The presidency could go either way in the fraught period ahead.”

The nation essentially remains just as divided as it was four years ago when Trump unexpectedly won the 2016 election. Miller notes, “Whoever wins this election will have the daunting task of trying to bring unity and healing to a nation that is split right down the middle.”

In other races, it appears that Republicans will continue to hold a majority in the U.S. Senate, Miller says, while Democrats will maintain control of the House of Representatives, resulting in a split Congress. That’s been the case since the 2018 midterm elections when Republicans lost the House. Coincidentally, according to our analysis, markets have performed best under a split Congress.

Two key issues in the race

The U.S. economy and the coronavirus outbreak were the top two issues in the presidential contest, according to most polls. Trump was generally viewed unfavorably for his handling of the pandemic, while voters gave him higher marks for his economic policies. The U.S. fell into a recession earlier this year, as government-imposed lockdowns brought economic activity to a near standstill.

However, in the most recent measure of U.S. economic activity — released just five days before the election — U.S. GDP growth bounced back sharply, rising at a 33.1% annual rate, benefiting from pent-up consumer demand and massive government stimulus measures. A key driver has been U.S. home sales, which have benefited from rising demand and historically low mortgage rates.

Despite extreme volatility during the year, U.S. equity markets also have trended upward. On a year-to-date basis to October 30th, the S&P 500 Index gained 2.8% as technology and consumer-tech stocks rallied amid the lockdowns.

“The near-term performance of the economy and the markets may have played a role in this election but, realistically speaking, presidents get far too much credit when things go right and far too much blame when things go wrong,” says Capital Group economist Darrell Spence. “For the most part, the dynamics that contribute to economic growth and market returns are put in place long before the election and they remain long afterward.”

“As investors, we try to focus on the underlying fundamentals that are driving the economy and corporate profitability,” Spence notes. “That often has very little to do with who happens to win an election.”

 

John Emerson is Vice Chairman, Capital Group International. Matt Miller is a political economist and Darrell Spence is an economist and research director at Capital Group, a sponsor of Firstlinks.

For more articles and papers from Capital Group, click here.

 

  •   7 November 2020
  • 1
  •      
  •   

RELATED ARTICLES

MFS Investments: Blue wave fails to reach shore

Perpetual: Biden impact not as important as China for Australia

The 2020 US presidential elections

banner

Most viewed in recent weeks

The growing debt burden of retiring Australians

More Australians are retiring with larger mortgages and less super. This paper explores how unlocking housing wealth can help ease the nation’s growing retirement cashflow crunch.

Four best-ever charts for every adviser and investor

In any year since 1875, if you'd invested in the ASX, turned away and come back eight years later, your average return would be 120% with no negative periods. It's just one of the must-have stats that all investors should know.

LICs vs ETFs – which perform best?

With investor sentiment shifting and ETFs surging ahead, we pit Australia’s biggest LICs against their ETF rivals to see which delivers better returns over the short and long term. The results are revealing.

Family trusts: Are they still worth it?

Family trusts remain a core structure for wealth management, but rising ATO scrutiny and complex compliance raise questions about their ongoing value. Are the benefits still worth the administrative burden?

13 ways to save money on your tax - legally

Thoughtful tax planning is a cornerstone of successful investing. This highlights 13 legal ways that you can reduce tax, preserve capital, and enhance long-term wealth across super, property, and shares.

Our experts on Jim Chalmers' super tax backdown

Labor has caved to pressure on key parts of the Division 296 tax, though also added some important nuances. Here are six experts’ views on the changes and what they mean for you.        

Latest Updates

Investment strategies

Warren Buffett's final lesson

I’ve long seen Buffett as a flawed genius: a great investor though a man with shortcomings. With his final letter to Berkshire shareholders, I reflect on how my views of Buffett have changed and the legacy he leaves.

Property

The housing market is heading into choppy waters

With rates on hold and housing demand strong, lenders are pushing boundaries. As risky products return, borrowers should be cautious and not let clever marketing cloud their judgment.

Investment strategies

Dumb money triumphant

One sign of today's speculative market froth is that retail investors are winning, and winning big. It bears remarkable similarities to 1929 and 1999, and this story may not have a happy ending either.

Retirement

Can the sequence of investment returns ruin retirement?

Retirement outcomes aren’t just about average returns. The sequence of returns, good or bad, can dramatically shape how long super lasts. Understanding sequencing risk is key to managing longevity risk.

Strategy

How AI is changing search and what it means for Google

The use of generative AI in search is on the rise and has profound implications for search engines like Google, as well as for companies that rely on clicks to make sales.

Survey: Getting to know you, and your thoughts on Firstlinks

We’d love to get to know more about our readers, hear your thoughts on Firstlinks and see how we can make it better for you. Please complete this short survey, and have your say.

Investment strategies

A framework for understanding the AI investment boom

Technological leaps - from air travel to computing - has enriched society but squeezed margins. As AI accelerates, investors must separate progress from profitability to avoid repeating past mistakes.

Economy

The mystery behind modern spending choices

Today’s consumers are walking contradictions - craving simplicity in an age of abundance, privacy in a public world. These tensions tell a bigger story about what people truly value and why.

Sponsors

Alliances

© 2025 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. To the extent any content is general advice, it has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.