Election Uncertainty Spreads
In this tense, neck-and-neck election, uncertainty is reaching new heights. A sense of instability is rippling through Main Street to Wall Street. Investors are bracing for more volatility. Potential delays in election results, divisive economic policies, and mounting national debt are all raising concern. The VIX, often called the “fear gauge” for its measure of market volatility based on S&P 500 options, is hovering around 19. That is up from 12-15 earlier this year. For those with retirement funds, safeguarding portfolios during post-election turbulence is crucial.
Election Uncertainty and Volatility
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This election has seen more than its share of twists and turns. Both sides predict doom if the other wins. But for many analysts, the worst-case scenario is an unclear winner. Something that, while unlikely as a tie, remains a distinct possibility with recounts in swing states.
The prolonged uncertainty could mirror the chaos of the 2000 election. During that time, the S&P 500 fell nearly 8% from Election Day through the end of the year. As Morgan Stanley warns, “Delayed election results introduce a period of uncertainty and speculation, which historically has resulted in elevated levels of short-term market volatility.” With political tensions running high, a post-election spike in volatility remains a strong possibility.2
Economic Policy Impact: Tax, Tariffs, and Debt
The election results will chart the economic course of the country. The economic policies of both Kamala Harris and Donald Trump could have significant consequences. Harris plans to raise corporate taxes and introduce a tax on unrealized capital gains. These could cut into corporate earnings and affect investment. Trump, meanwhile, proposes hefty new tariffs. They could bolster U.S. manufacturing but hurt multinational corporations.
Experts warn both candidates’ policies could drive inflation and exacerbate the U.S. debt crisis. Paul Tudor Jones is a legendary hedge fund manager. He has remarked that regardless of who wins, “We are going to be broke.” 3
Tudor believes the platforms of both candidates, whether it is more spending or more tax cuts, will result in inflation. Tudor points to the $35 trillion debt as the underlying issue. Saying, “Financial crises percolate for years but they blow up in weeks.”
Tudor acknowledges that the actions necessary to tame the debt – raising taxes and cutting spending – are highly unlikely to happen. Therefore, the government may try to repay its debt by printing money. What those future dollars will be worth is up in the air.
For that reason, Tudor Jones concludes, “All roads lead to inflation. That’s historically the way every civilization has gotten out is that they inflated away their debts.” 4
Small Business: The Canary in the Coalmine
Small business is often called the backbone of America. And the impact of this election on it is a prelude to the economy at large. Uncertainty over election outcomes is weighing heavily on small businesses. The National Federation of Independent Business conducted a survey. Small business sentiment has reached an all-time high in anxiety. Nearly a third are delaying or even canceling investment plans due to election-related concerns. This hesitation is spread across industries from manufacturing to construction. And it may hurt the broader economy by stopping investment, hiring, and growth.
Protecting Your Future
With economic and political uncertainty looming, diversifying a portfolio is key. In the chaos following the 2000 election, while stocks plummeted, gold rose by 3.1%. On top of that, Goldman Sachs projects that the next decade could be a “lost decade” for stocks. They expect a nominal return of only 3% annually, or just 1% after adjusting for inflation. If inflation reignites higher, retirement funds could face a pummeling. 5
Meanwhile, gold has reached new highs. It has gained over 33% this year off safe haven demand. The election is contributing that demand. BNP Paribas analysts note that “the narrowing of victory odds…has created outcome uncertainty, which has been gold supportive.”6
With Morgan Stanley advising investors to stick to long-term strategies, diversifying with physical precious metals held in a Gold IRA could be the most effective way to election-proof your portfolio in uncertain times. To learn more, contact us before the November 5th at 800-462-0071.
