A divisive and contentious election cycle can dishearten voters, and this has been one for the record books.
Yet, there is a silver lining for investors: Not only does the November 8th election end the political drama, or at least quell it, markets may
go up after the dust settles if history is any guide. Indeed, as the chart shows, stock and bond markets have generally done well – regardless of who takes
office – in the few months and the year following Election Day (assuming no large exogenous event).
There are several possible reasons for this: A reduction in uncertainty surrounding the election outcome, a subsequent uptick in consumer confidence, and
more clarity around fiscal and other economic policies. In this election cycle, while the two presidential candidates’ agendas have varied significantly,
both have indicated they would support expansionary fiscal policies, such as increased spending on infrastructure and reform of the corporate tax code.
At PIMCO, we see politics as one of the three P’s for investors to watch through at least 2017, along with policy and productivity, both in the U.S. and
globally. As colleagues Joachim Fels and Andrew Balls discussed in their essay “ What Lies Beneath,” politics is the main
non-economic wild card over the next year or more. Indeed, while we are seeing diminishing returns from monetary policy, a more certain political
environment coupled with potentially more expansionary fiscal policies would be a welcome development for markets.
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