Two important elections are coming up in November. The first is on the 3rd as Americans go to the polls for the midterm election for Congress. A day later we vote in our local government elections.
Both are being set up as elections of change. In the US, midterm elections usually see the sitting president’s party lose support. With the House Republicans having a very slim majority, expectations are that the Democrats will take control. Importantly, the Senate is a very long shot for the Democrats, so even if they do win the House, Congress will be split. Donald Trump will still be in the White House and will still be able to veto legislation.
Locally, we’re expecting change after the ANC’s poor showing in the last general election. MK is expected to win eThekwini and the DA Joburg. This is what the polls are suggesting, and both could end up being wrong.
I am already seeing suggestions on how to prepare our portfolios for election results based on the above assumptions.
I can’t stress enough that these assumptions are based on polling data that has been wrong before. And, as I have written previously, prediction platforms are not really any better than traditional polling. So, the first risk of positioning your portfolio for a specific election outcome is that your expected outcome may not happen. Then what?
There is another issue. Let’s say that the polling is accurate and the outcome of the two November elections is as expected. Then what?
Joburg doesn’t suddenly become a world-class city just because we have a new mayor in town. Helen Zille, who is expected to lead the biggest party in Joburg after the election, has already said that fixing the city will take years — more than the five-year term she may get as mayor. And she’s right.
Sure, there may be a few quick wins: fixing some potholes and maybe a quicker response to leaking pipes. But a structural turnaround to the “brokenness” that is Joburg is a long-term process.
What we also forget is that the DA — and by proxy Zille — may get the most votes, but that does not ensure she gets to be the mayor.
It is likely to be the same in the US. If the Democrats gain control of the House, a split Congress is not going to be any better. Trump is not going to suddenly change his spots and start governing with Congressional support. It’ll very much be the same as usual, maybe with more fiery threats from the Democrats.
You can see where I am going with this. Changing long-term investment strategies because of a single event that may shift political power is unlikely to improve your portfolio.
Further, Trump’s second term shows that politicians are pretty terrible at doing what they promise. Trump promised to lower everything: rates, inflation, energy, yields and food costs. None of which has happened. But so what? Markets are higher and investors are richer despite Trump not sticking to a single campaign promise.
Politicians and political parties come and go. Investors should largely ignore them and focus on the long term.
