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Politics, the Media, and the Markets - Part 3

Politics, the Media, and the Markets - Part 3

| September 20, 2023

This week, we will examine how the media affects the stock market during election cycles. This should help add to the election, media, and market perspective we have been building so far this month. Today, I want to walk you through eight ways the media can affect the stock market during election years in the hopes of unveiling more of the non-sensical nature of the relationship between these three entities.


Media Effect

Market Sentiment & Perception

This one we have already touched on, but it bears repeating: The media plays a crucial role in shaping public perception and sentiment about the economy and the stock market. Positive or negative coverage of election candidates' economic policies can influence investors' expectations and decisions.

Volatility & Uncertainty

This also bears repeating: Election years often bring about increased uncertainty due to potential policy changes and shifts in leadership. Media coverage of polls, debates, and potential policy changes can lead to higher market volatility as investors react to changing political dynamics.

Investor Behavior

The media can influence investor behavior by amplifying emotions like fear and greed. If the media portrays a particular candidate as favorable for the economy, it might lead to more bullish behavior in the market. Conversely, negative coverage could lead to more cautious or bearish behavior.

Policy Expectations

As we have discussed in previous weeks this month, the media helps disseminate information about candidates' proposed economic policies, tax reforms, regulatory changes, and other potential impacts on various industries. Investors may adjust their portfolios based on their expectations of how these policies could affect different sectors.

Rumors & Speculation

During election years, the media can magnify rumors and speculation about potential policy changes, election outcomes, and their economic implications. This can lead to short-term market swings as investors react to these unverified reports.

Market Reactions to Debates & Events

Media coverage of election debates, candidate speeches, and major campaign events can influence short-term market movements. Statements made during these events can impact investor perceptions of the candidates' economic competence and potential policy directions.

Sector & Industry Analysis

Media coverage can highlight specific sectors or industries that are expected to benefit or suffer (remember, winners and losers) under different candidates' platforms. Investors might adjust their holdings based on these insights, leading to shifts in capital allocation or running out of the market altogether, which, as we saw last week, is a losing proposition.

International Impact

Elections can have global implications, especially for economies and markets closely tied to a particular country. The media's coverage of these events can influence cross-border investment decisions and international market trends.

It's important to note that while the media can influence market sentiment and short-term movements, the stock market's behavior during election years is influenced by many factors, including economic data, corporate earnings, global events, and more. Long-term market trends are often driven by fundamental economic factors rather than solely media coverage or election outcomes, and that is why we ignore all the election drama and keep on truckin’. Slow and steady, a.k.a. long-term investing, is the key to success in the market over time. At least, that is what history shows us!

Until next time…

One last thought: I believe an educated investor is an empowered investor. If you like what you’ve read and think your friends and family can benefit as well, please share.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested in directly. 

All investing involves risk, including loss of principal. No strategy assures success or protects against loss. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.

Dollar-cost averaging involves continuous investment in securities regardless of fluctuation in the price levels of such securities. An investor should consider their ability to continue purchasing through fluctuating price levels. Such a plan does not assure a profit and does not protect against loss in declining markets.