Neil Patel, The Motley Fool
4 min read
The midterm elections are over. Starting in January, Democrats will take control of Congress from the Republicans. As usual, political change creates a backdrop for heightened stock market volatility. And this year was no different.
The biggest question mark is what impact, if any, the new political regime will have on the artificial intelligence (AI) build-out. Investors generally believe that the entire industry will be under more scrutiny. Moreover, data center construction could slow, a development that the hyperscalers, which are spending huge sums of capital, depend on so heavily.
Missed AI’s “Act 1”? Act 2 Could Be 16x Bigger. Most investors think they missed the AI boat because they didn’t buy Nvidia in 2005. But according to our analysts, we’re only at the end of “Act 1″—the R&D phase. “Act 2” is the global rollout. Continue »
Uncertainty is the key theme. And investors are trying to figure out how to best position their portfolios. History shows there’s an investment strategy that has never failed after a midterm election.
Stick to the plan
Elections naturally get all of the attention. And media outlets never hesitate to draw connections between the political arena and your financial situation. This can drive a sense of urgency. You may feel like you need to take deliberate action immediately. That’s not the right thing to do.
This might come off as the most boring piece of advice ever. But the best move that investors can make is absolutely none. A smart investing strategy is to avoid making portfolio moves strictly based on election outcomes.
History proves that this is the optimal course of action from a purely financial standpoint. Since 1980, the S&P 500 index (SNPINDEX: ^GSPC) produced a positive total return over the 12 months right after a midterm election 100% of the time, with an average gain of 13.7%. It’s impossible to argue with this track record. It doesn’t matter whether Congress is blue or red.
You might start to think that this time will be different. After all, valuations are high. There’s geopolitical tension. Inflationary pressure is persisting. And the AI boom, which is sucking up so much capital, is sparking fears of a bubble.
To be clear, there are always reasons to worry. Seasoned market participants know that this is true. Uncertainty is nothing new. In fact, it’s par for the course.
History shows that staying invested in the stock market is the winning strategy. Over the long term, it pays off. On the other hand, panicking and backing out will prove to be a costly mistake.
