Election 2020: Time for patience

The vote will be sorted. Keep your eye on your long-term plan.

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Key takeaways

  • With votes still being counted, election uncertainty may contribute to stock market volatility.
  • Laws ensure the continuity of government.
  • Election-related volatility will pass.
  • Investors should focus on the economy, which is recovering.
  • If you have a solid long-term plan, stick with it. If you don’t have one, we can help.

With votes still being counted in the presidential and Senate races, markets may be unsettled in the short term. But there is a process for counting the vote and resolving disputes. In the interim, focus on what you can control—your emotions and your long-term financial plan. And consider using short-term market pullbacks as opportunities to strengthen your investment mix.

Ready for what’s next

Federal election law has long recognized that it can take some time to certify the vote. “We will not be without government,” says Jim Febeo, head of government relations and public policy at Fidelity. “Our nation’s laws ensure the continuity of government through a number of different temporary succession scenarios until a president and vice-president are seated.”

In fact, the 133-year-old electoral count act gives the states 35 days after the election to complete their counting and for any lawsuits challenging the results to be resolved. Between now and December 8, the law requires states to certify the appointments of their members of the electoral college who will meet on December 14 to elect the president and vice president. By December 23, the electoral college vote must be complete and on January 6, 2021, a joint session of Congress will count the electoral votes and declare the official election results.

For more, read Viewpoints: What if election results are delayed?

A Congress divided between a Republican-controlled Senate and a Democrat-controlled House could act as a brake on many potential policy moves, at least for the next 2 years. Because of a variety of factors, including the unique election rules in states such as Georgia, determining what party will control the Senate may also take time to be settled.

It’s the economy

What should matter far more for investors than the twists and turns of the ongoing political drama is whether companies are able to grow their earnings despite the persistence of COVID-19 in much of the world. While many retailers and airlines have been hard hit, information technology companies have posted record earnings this year as much of life, school, and work moved onto digital platforms. Overall, the economy looks to be in recovery from recession.

To be sure, politics will play a role in how strongly the economy recovers. Fidelity’s asset allocation research team expects that the consumer spending that drives much of the US economy will rely heavily on government stimulus policies in coming months. That stimulus could come during a lame duck session of Congress even while election outcomes are unresolved.

Election-related volatility is normal

Historically, markets have often become volatile around elections and other periods when control of the White House and Congress has been uncertain, but that volatility has never led to prolonged periods of lower returns than were the case before uncertainty set in. Indeed, history shows that stocks have performed about the same following presidential elections, regardless of which party won the White House. It’s precisely this passing nature of politically induced market volatility that makes it all the more important to maintain a focus on the long term.

Stay focused on your future

While staying focused on your own long-term financial plan is essential, it’s not easy. Research by University of California finance professors Brad Barber and Terrance Odean shows that individual investors are susceptible to making imprudent, emotion-driven investment decisions based on news and that “many are unduly influenced by media.”

Lars Schuster, institutional portfolio manager with Fidelity’s Strategic Advisers, LLC, says you can help yourself stay on course by trying to ignore some of the news and spend your time on developing a well-diversified financial plan that reflects your age, goals, and tolerance for risk.

You don’t need to do much right now except try to be patient and Fidelity can help you.

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