It’s again the pre-election month! This month historically is not short of drama. It’s not surprising that this year there are even more. However, the financial market seems to already price in some results.
In July, the rise of all the renewable energy index started to accelerate versus S&P500 index, implying that Joe Biden’s chances of winning the presidential election largely increased, as the two presidential candidates couldn’t disagree more on energy policy. Even so, we should not implement our investment strategy by betting on who will win the presidential election.
There is an empirical analysis on the relationship between stock performance and which party is winning election. The answer is indefinite. As for the current situation, the economy and stock market performance depend more on whether an effective vaccine will be in place by the end of the year and whether the proposed fiscal aid will pass soon.
There are currently 190 vaccines under research. 10 of them are in the study of final phase. According to the precedence, the possibility of developing an effective vaccine is relatively big. As financial aid for small businesses and the unemployed, no matter who wins the election, a rescue package will pass swiftly. The actual aid could arrive at the beginning of next year if it’s delayed.
The financial market is full of uncertainties. The everyday movement of the stock market is a random process. However, in the long run, the market is driven by underlying factors impacting companies’ earning ability. The fundamentals right now are the Treasury Department and Federal Bank’s commitments to bolster the economy. America still has ability and room to take advantage of its magic money, although an abusive usage without check will limit its power.
I will be watching the election with you.
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