Stocktake: Investors should not ‘play’ the election

Predicting the election winner is one thing, predicting the market response is another

New York Stock Exchange

New York Stock Exchange

 

How should investors play the election? “They should vote”, says money manager Barry Ritholtz. “That is it.”

He’s right; market outcomes can be counterintuitive. Ritholtz notes the oil and coal sectors, both championed by Trump, have underperformed stock markets. Similarly, many argued the Mexican peso would fare badly under a Trump presidency.

Prior to the 2016 election, Prof Justin Wolfers produced research suggesting the peso could plummet 25 per cent in the event of a Trump victory. Instead, the peso bottomed within days of the result and did just fine over the following years.

The consensus in 2016 was also that a Trump victory would be horrible for stocks, only for investors to do a U-turn immediately after the result.

Right now, there’s chatter about what sectors will do well under a Biden administration, with many pointing to the potential for green stocks to prosper. However, an exchange-traded fund (ETF) consisting of solar stocks has already more than doubled this year. Are further big gains really likely, or will green stocks fall back, like oil and coal stocks did under Trump?

Predicting the election winner is one thing (Biden should win); predicting the market response is another.

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