Reading sentiment indicators in a partisan political climate

The U.S. presidential election is nine months away, which may seem like an eternity. Still, for market sentiment, the specter of the impending election casts a shadow of uncertainty over the financial landscape. With the relentless churn of the news cycle and social media noise, polarization seems to loom large, fanning the flames of anxiety and apprehension among many investors. Fusing these potent elements with investment decisions can create a volatile mix where emotions reign supreme, and rationality takes a backseat. Amid this upheaval, investors will likely grapple with conflicting messages, impulsive decisions, and the allure of trading short-term gains.

Like market narratives, investor sentiment can be driven by deeply held beliefs and cling to the irrational. Often, these beliefs can outlast the solvency of those who adhere to them, irrespective of political affiliations. Investors should understand that financial markets typically exhibit a minimal response to both presidential and mid-term elections. As the accompanying chart demonstrates, emotions associated with political affiliations make perceptions of the economic or capital markets landscape appear disjointed; the result can potentially increase market volatility and, at worst, create an apathetic view toward long-term investing.

Investors should refrain from changing their investment strategies in anticipation of post-election market swings or based on investor sentiment surveys. Doing so can contribute to significant losses and lead investors astray from their long-term financial goals. Instead, investors should stick to a well-thought-out investment plan and avoid impulsive decision-making based on election outcomes. That’s the best path for a more secure and stable future.