Just when you thought 2020 could not get weirder, it does.
The month of October has TWO full moons: the fall harvest moon on October 1st and a very rare "blue moon" on Halloween. The latter will be the first time since 1944 that it will be visible to the whole world! We all know full moons are associated with crazy evening behavior and turning into werewolves. Don't be surprised if you see more werewolves than usual.
Of course, the timing of this lunar phenomenon comes right before the election!
No surprise then that there seems to be increasing concerns that an uncertain outcome and chaos may plague the U.S. election. Recently, the fear of massive problems with mail-in ballots, contested elections, disputed results or violence in the wake of the results has reared its ugly head. We hope that the outcome will disappoint those anticipating negative or violent reactions.
From a capital market standpoint, it should not come as a surprise that U.S. equity markets are down from their early September highs. However, as an important reminder, it has not been in anyone's long-term investment best interest to try to position portfolios based on election outcomes or personal political opinions. Indeed, it does not matter which party holds the Senate, the House of Representatives, or the presidency; all periods of unified control - whether Republican or Democrat - have been associated with similar equity investment returns:
Now, this does not mean there won't be a period of volatility if things take an ugly turn after the election in the short-term. It is just that the returns tend to smooth out over time in a way that does not reflect an advantage for one party in terms of investment returns in the long-term.
In addition to the political uncertainty ahead of the election, capital market investors in the U.S. may also be worried about another type of political uncertainty: the lack of another fiscal stimulus deal between the Democrats and the Republicans.
We, however, are not too worried about it.
To wit, there is no evidence (yet) of another economic slowdown given readings from our leading indicators despite moving past the July expiration of the extended unemployment benefits. The Federal Reserve Bank continues to do a great job stimulating the economy through its monetary policy traction. The government's CARES Act kept household incomes at pre-COVID pandemic levels during the employment collapse earlier this year. It is important to note, each month, that employment improves - and it has done so nicely since the bottom - household income improves, and the need for stimulus goes down.
Once in a blue moon, you get everything - in this case, monetary and fiscal policy - lined up to save the day!