American Society of Pension Professionals & Actuaries published an article on how retirement plans are interpreting the current election cycle, citing data from NEPC's recent Defined Benefit Flash Poll.
This is a rare time. And not just in ways we’ve focused on for seemingly ages—it’s a once-every-four-years time when we select a president. That has great implications for a host of things, including investments—which can affect retirement plans and participants.
And those effects are relevant to retirement plans, writes John Italiano in Cammack Retirement’s Insights blog. “The political and economic backdrop of the election cycles are unique and can play a larger part in the impact on the market than the election itself,” he writes. Italiano argues that retirement plan sponsors should be mindful of that, as well as the possibility that investment choices may be driven by emotions and the need to make sure participants understand how important a long-term focus is.
For two centuries, Italiano notes, stock market fluctuations have tended to show patterns in the national election cycles. To wit: recessions have tended to begin in the first two years of a term of office, with bull markets in last two; a notable exception is the presidency of George W. Bush, in which the Great Recession began in his last year of office. Further, he observes, since 1833 when Andrew Jackson was president, the Dow Jones has returned an average price return of 10.4% in the calendar year before a presidential election. And ultimately, Italiano says, stock market performance cannot be attributed to either major political party.
As for the current election, Italiano notes that market responses to various outcomes are hypothetical. Nonetheless, he suggests that a result that entail divided government with one party in control of the Executive Branch and the other party in control of one or both chambers of the Legislative Branch “could present some short-term challenges for the market.” Similarly, a contested election with a delayed final result “is unlikely to be well-received by financial markets, as it raises uncertainty.”
And the 2020 election, whose results are not known yet, has already been regarded warily by plan sponsors according to the consulting firm NEPC. It reports that in a recent survey it conducted to assess pension plan sponsors’ views on strategy, risks and investments, nearly one-quarter of respondents said that the 2020 election was a biggest threat to their investment program. They note that small plans—which it defines as those with under $1 billion in assets—were twice as likely as large plans to regard the election as the top threat to their investments, and that more plan sponsors in the health care sector than the corporate sector overall (30% and 22%, respectively) considered it the greatest threat.
Italiano stresses the importance of retirement plan investors exercising discipline and keeping the long term in sight. “Attempting to invest based on the political party or individual holding office has mostly proven to be unsuccessful,” he writes.