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With Election Day upon us, many investors are wondering how to, or if they even should, position their stock portfolios ahead of knowing who the next president will be. Do you bet on a Donald Trump win? On a Kamala Harris win? If history has taught us anything, it’s that, for the most part, come Inauguration Day, who sits in the Oval Office is not going to outright determine what the stock market does over the next four years. A president’s policy choices will matter. However, there are so many other factors at play that influence the market. Who controls the House and Senate? What do regulators do? What does the economic backdrop look like? Arguably the most important factor behind how individual stocks perform has little to do with politics at all. It often comes down to how good the management teams at the companies you own shares in are at executing their strategies, pivoting when necessary, and delivering strong earnings and robust capital returns to shareholders. So, in our view, the real question is not who will win Tuesday’s election — but rather, how quickly will we know with a good deal of certainty, who the winner is? The sooner the better. If the voting counting drags out, the market could see an extended period of volatility until a winner is declared. More than 77 million people have cast ballots in early voting, according to NBC News. That’s nearly half the total number of votes in the 2020 election. Joe Biden was not declared the winner by NBC News until the Saturday after Election Day 2020. In his Sunday column , Jim Cramer said investors should all be hoping for a “resolution within 24 hours of Election Day and that the courts are on board if the election is fair. Indecision will hurt the stock market, not destroy it, but bruise it because the only thing markets really hate is uncertainty.” That said, if like us, you believe that over the long-term, stocks follow the fundamentals, then any uncertainty resulting from a drawn-out process is more likely to provide opportunities than anything else, but only if you know which companies have the fundamentals. So, having some cash on hand can’t hurt. Therefore, we think the best course of action is to approach the election as you would any other scenario where the fear isn’t so much one of deteriorating corporate fundamentals — remember as long-term fundamental investors, it’s all about the earnings — but rather market volatility resulting from geopolitical dynamics. In those situations, the best thing to do is to ask yourself, if volatility does strike, and we get a decent-sized market pullback — maybe even a correction, defined as down 10% or more from a recent high —am I positioned in such a way that I can view it as an opportunity to put some money work. Or at the very least, ride it out knowing that I have enough cash on hand without needing to sell something to raise money for upcoming expenses. At the same time, do I have enough exposure still on the books that, should the worries be misplaced — for example, we wake up Wednesday morning and it’s pretty clear who won — and we rally, I don’t feel left out and now start worrying about chasing rallies to get back in. This is always a good question to have in the back of your mind, but it’s especially important to consider ahead of a major event such as the election. Should you decide to raise some cash, be sure to do so while ensuring you maintain proper diversification. After all, some sectors will likely respond better to one candidate winning over another. So, a diversified portfolio will provide optionality no matter who wins. Jim also wrote Sunday that the stock market will more than likely be just fine no matter who wins the presidency. (He will be part of CNBC’s special Tuesday night election coverage .) After all, over nearly 16 years, we’ve had two Democratic presidents, Barack Obama (two terms) and Biden (one term), and one Republican, Trump (one term), and the market was higher during all three. In fact, market results during presidential terms tend to be positive, with JPMorgan analysts citing only three notable exceptions since 1932: both of George W. Bush ‘s terms (2001-2004 and 2005-2008) and Richard Nixon (1973-1974). Within the past three weeks, all three of the major stock market benchmarks closed at record highs: the S & P 500 and the Dow on Oct. 18 and the Nasdaq exactly one week ago Tuesday. As of Monday’s close, they are all down roughly a few percent from their record highs as rising bond yields have put pressure on equities. That’s still a pretty amazing run, as JPMorgan points out, “For a Presidential election year, the current 3M S & P 500 return (+12.5%) is the strongest in nearly a century, and the YTD return is the 3rd highest on record.” So, whoever wins the White House will be inheriting a market in pretty decent shape barring a major catastrophe, and an economy with resilient growth and moderating inflation — not to mention a Federal Reserve that just kicked off an easing cycle in September with a 50-basis-point interest rate cut. Two days after the election, the Fed will decide how much further it will cut rates. According to the CME FedWatch tool , a 25-basis-point cut is expected on Thursday, with another 25 in December. Bottom line A quick and decisive presidential election outcome — one way or the other — is what’s best for the stock market. That’s why you should think about positioning in terms of the chances we see widespread market volatility rather than betting on which stocks do well under which president. In other words, be more concerned about your cash levels over the next 24 hours than you are trying to change up your exposure-based election polls or the odds you see in the political betting markets. (See here for a full list of the stocks in Jim Cramer’s Charitable Trust.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.
With Election Day upon us, many investors are wondering how to, or if they even should, position their stock portfolios ahead of knowing who the next president will be. Do you bet on a Donald Trump win? On a Kamala Harris win?
