While advisors may have been reading their clients for potential additional volatility in the market due to a potentially contested election, the passing of Justice Ginsburg may make that even more confusing. A court with only eight justices can deadlock, meaning, no decision with legal impact could result.
In February of 2019 we wrote about how bumpy presidential election season could impact the market. In March of 2020, we wrote about a bumpy market. With the passing of Justice Ginsburg, there is a possibility of an even more uncertain election as there is now more volatility in the election and also less certainty that a court with only eight Justices will be able to arrive at a decision.
There is little doubt that Justice Ginsburg’s passing impacts the election. “After weeks of telling you that very little affects the fundamentals of a presidential campaign—not conventions and rarely debates and never an August news cycle—the opening of a Supreme Court seat that had been appointed by Democrats is arguably a bigger deal than the Comey October surprise was in 2016.”[1] This uncertainty is something advisors should watch. As we reported back in February, presidential elections do impact stock markets.
In a normal election cycle, “in the lead up to an election, the market tends to gain a significant percent (some report put this close to 10%) with significantly smaller gains directly after the election (the same reports put those gains closer to 3%).”[2] And, as we said, normally, presidential politics have the same impact on the market as any other disruption: “At its heart, the concern about the impact of presidential politics on the market is not all that different from any other impact to the market: clients need to not make hard swerves in response to anxiety about the market. Some analysts suggest that the presidential race is the zenith of behavior finance: while patterns exist as to the impact of the race on the market, the decisions to be made during that time may or may not need to factor in the race and its results.”
However, the market was quite normal during these last few months of the election. “Normal has a very different look in the Spring of 2020. Physically, many Americans are practicing social distancing, something the National Parks Service referred to as applying the rules to interacting with wildlife to humans. Normal may also look different financially to many people for a long time too.” While investors may become habituated to volatility, they may not become so habituated to drawn out question of leadership.[3]
The US has faced a contested election in the recent past. In discussing a new report by USB, the investment monitoring blog Chief Investment Officer discussed the impact of the contested 2000 election and stated “Judging by the market’s swoon 20 years ago, amid the five-week period of uncertainty until a winner was called in the Bush-Gore contest, investors will get walloped…. The Dow Jones Industrial Average dropped more than 5% in the two weeks following the election.”[4] That blog went on to highlight that investors may be rebalancing to adjust for this volatility, moving into bonds and precious metals.
While advisors may have been reading their clients for potential additional volatility in the market due to a potentially contested election, the passing of Justice Ginsburg may make that even more confusing. A court with only eight justices can deadlock, meaning, no decision with legal impact could result. It is unclear if the Senate can move to hold hearings and vote on the nomination of a new justice to replace Ginsburg by the time a case involving the presidential election would be before the Supreme Court. In the Bush v. Gore case, the Supreme Court rendered its decision on December 12, 2000 (with the election on November 7, 2000). According to the Congressional Research Service, a government agency, “Overall, the average number of days from nomination to final Senate vote for these nominees is 69.6 days (or approximately 2.3 months), while the median is 69.0 days.”[5] This may not include holidays, such as Thanksgiving or Christmas. In other words, the uncertain may have just gotten more uncertain.
[1] https://sweep.thedispatch.com/p/the-sweep-yep-this-changes-everything
[2] https://www.bcgbenefits.com/blog/politics-and-the-market
[3] https://www.bcgbenefits.com/blog/volatility
[4] https://www.ai-cio.com/news/markets-reaction-delayed-vote-conclusion-not-good-says-ubs/
[5] https://fas.org/sgp/crs/misc/IN10966.pdf
These articles are prepared for general purposes and are not intended to provide advice or encourage specific behavior. Before taking any action, Advisors and Plan Sponsors should consult with their compliance, finance and legal teams.
Before leaping into the unknown, we recommend a thorough examination of your plan. Because we are experts in the field, we know the marketplace and know what your existing vendor is capable of offering. Through this examination, we can help you optimize the service you receive.
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