Video: Stock Market Volatility & Election Uncertainty
Monday, October 5th, 2020

Stephen: If you’re wondering what will happen to the stock market and the economy if there is a contested election or the implications of a president that just contracted COVID-19 then you’re going to want to watch the rest of this video.

I’m your host Stephen Rischall along with my co-host Neal Frankle and this is the Smart Money Show.

Today we’re going to be talking about all things related to the election, the stock market and the economy, we know these are a lot of things that are on your mind today. Let’s dive right, Neal I know you’ve been watching the news, President Trump was recently admitted to the hospital at Walter Reed, there’s a lot going on, what’s your take on all this?

Neal: The news is changing almost by the moment and the media has a great interest in making things seem more fantastic and frightening than they really are, but the way things are looking as of this when we are recording this, President Trump is very possibly going back to the White House to go to work and he’s feeling a lot better, seems like his treatment has been effective.

Stephen: There’s obviously been concerns and the market took a quick reaction to the news of the President contracting COVID-19, but now we’re in a situation where he’s probably going back to the White House.

I think the bigger question on people’s minds are what’s going to happen if there is a delay to the election actually taking place, or if the debates all the sudden get delayed, or you what if there’s actually a contested election?

Neal: I think it’s even more complicated than that. What if President Trump is unable to act as President in a month from now? What happens if Joe Biden, who’s also up there in terms of age, what if he gets sidelined? There’s tremendous uncertainty.

What if the election does get contested or what if it takes a longer time to determine the ultimate winner of the election? Well I’m not too concerned about that and I’ll tell you why.

There’s a lot of chaos going on right now, we have COVID-19 uncertainty and we have election uncertainty, and the media is trying to blow this up and make it look like there’s no solid ground anywhere.

But the reality is, with respect to the election, there’s an expiration date on this uncertainty because we’re going to have an election in a month and it may take a little bit of time if there’s legal battles over the results, but ultimately it will be resolved just like in 2000. It was delayed a little bit, we didn’t know the same night, weeks later we did know.

There is going to be market volatility every time the wind blows a different direction, but ultimately for long-term investors, this issue is not the critical issue. There will be a President, we’re not going to go into disarray, there is going to be a president elected. We have systems, there a whole procedures of what happens in these types of situations.

Stephen: I just put up on the screen for our viewers, there definitely is a calendar, these are the key dates between the vote and the inauguration, so things need to happen. We have to keep in mind when we are voting, we’re voting for the electors, right, the Electoral College.

Even if, I mean God forbid, if someone passed away between now and voting day, or between the time that we voted and before the Electoral College votes, the good news is there is a process for that.

While it might seem like there’s a lot of uncertainty, and there certainly can be, the Constitution tells us what’s supposed to happen. You know if for whatever reasons the Electoral College can’t agree either, it goes to the House of Representatives, they actually get to elect the President and then the Senate elects the Vice President. This is the new Congress by the way, not the one that we currently have right now.

So the good news is there is at least a prescribed method for what’s supposed to happen. So I tend to agree with you Neal, I don’t think it’s going to be that disorderly, but I think there certainly is still cause for confusion, and the big word is just uncertainty and how that leads to volatility in stock market and the economy.

Let’s play this out, Neal let’s say there is a delay of the vote or there is a contested election, and these things go on with Congress or whomever, how do you think the market and the economy is going to react?

Neal: That’s a great question, we both know the market hates uncertainty, yet in my life and I’m guessing in your life as well, I’ve never seen more uncertainty than now. Yet the market has behaved pretty well. We’re pretty close to the highs before the COVID disease unleashed on us.

So the market is saying, “we’re okay with this uncertainty and we don’t think there’s all that much to worry about ultimately”. In the short run, there could be volatility, but I’d say, and I hate to predict, but within six-months to a year, that volatility will not be relevant.

Stephen: I agree with you Neal. The other thing everyone likes to talk about all the time, and lately I’ve seen this all over the news, is “if this party wins or if that President wins, here is what’s going to happen with the stock market”.

The real answer is, nobody knows, we don’t know. We can certainly make our predictions, but I just shared on the screen with everybody, a chart that shows over the years what actually has happened to the stock market with different Presidents and different political parties both in Red and in Blue, overtime, all the way going back to Calvin Coolidge.

What you actually see, is generally speaking, the stock market has done pretty darn well. It’s annualized return is over 9%, pretty close to 10% annually and this goes back as far as the 1920s. What you realize from this is that it doesn’t really matter if this candidate or that candidate or this party or that party wins.

The reality is the fundamentals of the economy, the global economy, the stock market; that’s what’s going to prevail.

Are you still going to fill your car up with gas, or plug it in to charge up your hybrid car or your electric car? Are you still going to buy that electric car? Are you still going to shop at the store for groceries and clothes and everything else? I think the answer is more than likely, yes. That’s why we need to focus on the bigger picture here and that’s more important.

Neal: I completely agree, and I really appreciate you bringing that up. Other things to keep in mind, our interest rates are super low and the government, because it has so much debt, has a strong interest in keeping interest rates very low.

I read something this morning about the target would be 1% for long term rates. That means that the government service on debt, it doesn’t cost as much money. When rates go up to 2%, 3%, 4% or 5%, that’s going to cost a lot more money. As long as rates stay low, and that’s what everyone’s target is for now, that’s going to make assets like stocks and real estate more attractive.

With respect to stimulus, to help the economy get out of the recession that the response to COVID has created, both political parties want to stimulate the economy.

We don’t know, whoever gets elected, we don’t know what they’re going to do. It’s one thing to say something when you’re running for office, it’s something else when you’re in office. Long-term I think that, yes in the short-term I think there’s a lot of uncertainty, but those things are going to get resolved, and the long-term looks pretty good.

Let me ask you this question Stephen, what do you think still about COVID-19, is this going to derail our economy?

Stephen: Well I’d say that’s probably the biggest risk. Comparing that to the upcoming election, the most uncertain thing about the election is who is actually going to be elected President. Other than that, there’s a prescribed method to follow, so to me there’s way more uncertainty around COVID-19 and I think fundamentally COVID-19 is still like the Dark Horse.

We saw what happen when the global economy literally shut down. That was a fundamental effect on supply and demand, when the government says “for your own safety or for whatever the reason may be” you can’t go out and shop, you can’t go out and do that, you’re still not allowed to maybe go to restaurants or nail salons or whatever it is. Fundamentally that is making a humongous change to demand.

Whether we like it or not that’s just the reality and I think things like that, and anything related to supply and demand, like we learned in economics 101, that’s actually what’s going to be most impactful for the economy and the stock market long-term

Neal: Well it’s undeniable that that’s the focus, I personally don’t think that this will be ad infinitum. I was surprised to see, for example, automobile manufacturers drop in sales were down only about 10% versus a year ago in the most recent month. I found that fascinating, I thought that would have been like 80%, but it’s not as bad as it feels.

Also, we see people in the economy rearranging their businesses, work and lifestyles to accommodate this new situation. In my mind we’ve accommodated and found work arounds much quicker.

Not everybody, some businesses are definitely going under and they’re not coming back. But our unemployment, which you have to remember last time we spoke people were worried about a 25% unemployment rate and now we’re under 8%.

So I believe there’s a lot of, let’s say “economic cures” for COVID-19, potential vaccines and treatments. President Trump is receiving some unique treatments, maybe that will be a blessing in disguise, in that it will help pioneer or help find other treatments that are very effective for many more people.

Long-term, I’m really not that worried about it, I’m just not. But you have to keep in mind the media has a strong interest in making everyone believe that the other people who voted differently from you are the worst and they’re going to ruin the economy. And it doesn’t matter which side you’re on, each side is telling each other that is what’s going on. So we’ve got to be careful to shut that media off and if anytime, now is a good time to really tone that down. That’s a big problem and it’s causing a lot of anxiety too.

Stephen: Yeah, that’s probably the best advice anyone can get right now, if you’re feeling stressed out about the economy, the stock market and the election right now, try turning off the news or watching something else.

There’s so much of that out there right now, I couldn’t agree with you more Neal, I think long-term things are looking pretty good, and while it may not be the same for everyone in this recovery, we clearly see that people are adapting one way or another.

Well, if you learned something new, be sure to like and follow and share this with your friends and your loved ones because they probably have a lot of the same questions and concerns that you do about the election and COVID-19 and the stock market.

Until next time I’m your host Stephen Rischall along with my co-host Neal Frankle, and we’re helping you get smart with money!