2024-09-20

Several investors have been asking me what, in my opinion, will happen to the stock markets if Donald Trump is elected president of the United States on November 5.

My answer is short: I have no idea. I doubt anyone else knows either.

I’ll go further: I don’t know who will win the next presidential election.

The first time Trump was elected, in November 2016, most observers expected a stock market crash. The opposite happened: between November 8, 2016, and March 30, 2017, a period of less than five months, the S&P 500 increased by 10.7%, not counting dividends.

Today, many may be tempted to pull their investments out of the stock market, anticipating a crash following the election result.

As a long-term investor, I believe that would be a very bad idea. Why?

For one, I don’t see myself as an investor in the stock markets. Rather, I see myself as a shareholder in 28 companies whose shares are publicly traded. There is a big difference between the two. If you owned a private business, would you want to sell it because you were worried about the results of the next U.S. or Canadian elections? I imagine not.

Secondly, I don’t really have a clear idea of the economic consequences of the election result on the companies I own (I only own a very small fraction of these companies).

Whether the President of the United States is Ms. Harris or Mr. Trump, I imagine some of my businesses might be affected—some positively, others negatively. But I don’t know which! If my portfolio is well-diversified, I hope that any impact, if there is one, will be balanced.

As I write this, the governors of the U.S. Federal Reserve are meeting to decide regarding the U.S. benchmark interest rate. Economists are divided between predicting a drop of 25 or 50 basis points. This decision could have either a positive or negative effect on the stock markets in the coming days. Would it be wise to speculate on such a market movement?

My answer remains the same! What difference will it make for the 28 companies I hold in my portfolio? Not much: some would benefit more from a rate cut than others, but overall, I don’t believe the effect would be significant.

When you own a well-diversified portfolio consisting of high-quality companies that should continue to grow their profits over the long term, most of the events that cause short-term stock market fluctuations are nothing more than noise.

Election results, interest rate hikes or cuts, employment statistics, GDP growth—all these statistics are just noise for the long-term investor.

As for me, I believe my time is much better spent closely following the companies in my portfolio and doing research to try to find others, rather than trying to predict what will happen if Trump is elected president or if the Fed cuts interest rates by only 25 basis points.

 

Philippe Le Blanc, CFA, MBA
Chief Investment Officer at COTE 100


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