2020 will go down in history as one of the most interesting years we have faced in some time. Our society has endured, and still battling, a global pandemic, experienced an extremely volatile financial market, and now we are on the threshold of one of the most politicized Presidential elections. To top it off, we are seeing signals that this election will not go quietly into the night.
For starters, due to COVID-19 concerns, officials expect to see a higher utilization of mail-in ballots. This method of voting poses a few issues. One, it will delay the tabulations of votes as each ballot requires additional time to verify and record. Not to mention the ununified rules each State has as to when they can accept and start to count these votes. Currently, 11 states are not allowed to open ballots until election day.
Mail-in ballots can also open the door to contesting their validity and are prime for scrutiny. Was the ballot sealed in the envelope properly, does the signature match, has the ballot been marked correctly and accurately, is there a witness signature if required? All these factors will not only provide an opportunity for contest but will delay the election outcome resulting in uncertainty.
Although this election year has its unique nuances, we can look back to prior elections for some guidance. The last contested election was in 2000 with Bush Vs Gore. You may remember that a specific ballot used in Florida was the issue. According to Morningstar, leading up to the election, markets had fallen -1.6% YTD. During the contested period (Nov 7th- Dec 13th), markets had fallen -4.9%. This included 4 trading days with swings of +/- 2%. In the month following Gore’s concession, the markets fell -3%.1 As you can see, uncertainty, including contested elections, is not well received by the market.
So, what should you do heading into November? We are having discussions with our clients around their goals and if their goals are changing then we are adjusting their financial plans and allocations to meet those goals and we believe in long term investing.
Although it may seem cut and dry, there are just too many factors involved to accurately predict what will happen. However, we are also looking at the potential volatility as an opportunity. Markets that temporarily dislocate due to political uncertainty could provide a buying opportunity.
