Election Turmoil Could Rattle Stocks

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The stock market shrugged off President Trump’s bout with coronavirus. Whether it can shrug off a contested election—if it comes to that—remains to be seen. “The uncertainty has the potential to create some churn,” says Phil Orlando, chief stock strategist at investment firm Federated Hermes. “We could see a 10% to 15% decline in the last couple of months of the year.”

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That’s what happened in 2000, when Al Gore and George Bush fought it out. Although the stock market had already peaked in March of that year, the S&P 500 fell 6% from election night through the day following Gore’s concession, losing a total of nearly 9% through late December.

Moreover, says David Kelly, chief global strategist at JPMorgan Funds, “The election drama of 2000 does appear to have contributed to the recession of 2001.” Consumer confidence fell sharply after the election, leading to a slump in spending.

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The results this year are unlikely to be as close as in 2000, says Kelly. Nonetheless, a contested election could distract lawmakers from efforts to aid workers, businesses, and state and local governments, he says. “The economic recovery already looks set to slow sharply in the fourth quarter, he says. “This would be a particularly inopportune time for a prolonged bout of political uncertainty.”

The stock market will muddle through in all but the worst-case scenario, says Burt White, chief investment officer at LPL Financial. The impact of a delay in the results would be negligible, he says, and a recount might cause a 5% to 10% pullback. A legal or legislative battle—in White’s view, the least likely election outcome—could result in a correction of 10% or more, he says.

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Anne Kates Smith brings Wall Street to Main Street, with decades of experience covering investments and personal finance for real people trying to navigate fast-changing markets, preserve financial security or plan for the future. She oversees the magazine's investing coverage, authors Kiplinger’s biannual stock-market outlooks and writes the "Your Mind and Your Money" column, a take on behavioral finance and how investors can get out of their own way. Smith began her journalism career as a writer and columnist for USA Today. Prior to joining Kiplinger, she was a senior editor at U.S. News & World Report and a contributing columnist for TheStreet. Smith is a graduate of St. John's College in Annapolis, Md., the third-oldest college in America.