One of the first conclusions drawn after the 2020 US Presidential Election last week was that pollsters got things badly wrong.
While a Joe Biden win was the consensus prediction, the closeness of results in states Democrats had been forecast to secure easily suggests the polling industry fundamentally misunderstood something about American voters. The soul-searching in that industry will be long and hard.
But they won’t be the only ones. There may be something similar happening among professional stock market watchers this week. Why? Because the result as it appears - with a Democrat-held White House but Republican-held Senate able to stymie any changes it doesn’t like - was considered the very worst possible outcome for shares, and yet here we are a few days later with markets all over the world posting healthy gains.
Rather than worry about the US Senate blocking Joe Biden’s financial stimulus measures, investors have chosen instead to focus on a likely cooling of trade rhetoric between the US and China, and perhaps the fact that President-elect Biden’s plan to raise corporation tax to 28% will now not happen. Actions by the Federal Reserve, which do not depend on who is President, will continue to be supportive of growth and the stock market.
In hindsight, these things look obvious but they were not to most people given the (admittedly thankless) task of trying to anticipate stock market movements.
It should act as a reminder that, when it comes to the stock market, no one knows anything for sure and grand theories seldom come to pass as expected. 2020 so far has provided several tests of investor nerve and many will have been tempted to sell risk assets like shares until the pandemic and then US Election played out. It is unlikely that those attempts to time the market will have succeeded.
Economic growth in the US is rebounding more quickly than many feared and companies are defying the most dire predictions on earnings. These things can change for the worse, of course, but it’s also possible that they can change for the better as well. We all hope that efforts around the world to develop and distribute an effective vaccine come good, in which case the whole economic picture will improve.
No one has ever managed to consistently time movements in and out of markets to capture only the upside while dodging the downside. Long-term investing success means staying invested for all of it, for the great years, like 2019, and the not-so-great years, like 2020. Equally, it means holding a mix of assets in different regions so that, whatever happens, losses when they happen will be softened by gains elsewhere.
Predictions in politics and the stock market will continue, but sticking to a plan that suits your aims means you shouldn’t worry that you’ll end up on the wrong side when those predictions prove incorrect.
Five year performance
|(%) As at 31 Oct||2015-2016||2016-2017||2017-2018||2018-2019||2019-2020|
Past performance is not a reliable indicator of future returns
Source: Refinitiv, total returns as at 31.10.20, in local currency
Important information: The value of investments and the income from them, can go down as well as up, so you may get back less than you invest. Investors should note that the views expressed may no longer be current and may have already been acted upon. Overseas investments will be affected by movements in currency exchange rates. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to an authorised financial adviser.