Beyond Bulls & Bears


Quick Thoughts: Political Volatility Ahead

Our Head of Equities Stephen Dover explains why he thinks possible changes to the US political landscape could lead to further bouts of market volatility.

This post is also available in: French Italian German Spanish

The 2020 US presidential and congressional elections are fast approaching, and since we are now on COVID-19 time, we are likely to find more policy and political turbulence through Inauguration Day than we have faced in past elections. After the election results are clear, there is a high possibility that there will be more legislative changes than we have historically experienced, especially if there is a “blue wave.”1

Election uncertainty will likely lead toward more market volatility and the need to think about political considerations when navigating your investments. “Even if we can identify an unchanging handful of investing principles, we cannot apply these rules to an unchanging universe of investments—or an unchanging economic and political environment. Everything is in a constant state of change…” our Sir John Templeton wrote as number 14 of his “16 Rules for Investment Success.” Consider this:

  • The first US vice-presidential candidate of Black and Asian American descent is on the ballot, reflecting America’s changing demographics.
  • A high portion of the electorate is likely to vote absentee or by mail. It may take longer to tally results, providing uncertainty and grounds for disputes. Some congressional results and perhaps the presidential result will not be known immediately after election day. This could create market volatility on the days following the election.
  • The US Senate’s slow process for advancing major legislation has made it easier for investors to predict policy changes. Often called “the world’s greatest deliberative body” due to its longer terms, smaller size, and statewide constituencies, the Senate historically led a more collegial and less partisan atmosphere than the House of Representatives. The Senate filibuster, which requires 60% of the Senate to agree to pass major legislation, required some cooperation between the political parties.
  • Investors have often preferred “gridlock” in Congress. The days of the Senate filibuster are likely numbered as both presidential candidates indicate an openness to eliminating it.

In the past few years, the filibuster rules were modified for some budget and tax issues, and political and judicial nominations. A change to the remaining Senate filibuster rules will make it more likely that major legislation affecting investors will be implemented and then perhaps retracted when a future Congress is of a majority different party.

Important Legal Information

This material is intended to be of general interest only and should not be construed as individual investment advice or a recommendation or solicitation to buy, sell or hold any security or to adopt any investment strategy. It does not constitute legal or tax advice. The views expressed are those of the investment manager and the comments, opinions and analyses are rendered as at 14 August 2020, and may change without notice. The information provided in this material is not intended as a complete analysis of every material fact regarding any country, region or market.

The companies and/or case studies shown herein are used solely for illustrative purposes; any investment may or may not be currently held by any portfolio advised by Franklin Templeton Investments. Past performance does not guarantee future results.

Data from third party sources may have been used in the preparation of this material and Franklin Templeton (“FT”) has not independently verified, validated or audited such data. FT accepts no liability whatsoever for any loss arising from use of this information and reliance upon the comments, opinions and analyses in the material is at the sole discretion of the user.

Products, services and information may not be available in all jurisdictions and are offered outside the U.S. by other FT affiliates and/or their distributors as local laws and regulation permits. Please consult your own professional adviser or Franklin Templeton institutional contact for further information on availability of products and services in your jurisdiction.

Issued in the U.S. by Franklin Templeton Distributors, Inc., One Franklin Parkway, San Mateo, California 94403-1906, (800) DIAL BEN/342-5236,—Franklin Templeton Distributors, Inc. is the principal distributor of Franklin Templeton U.S. registered products, which are not FDIC insured; may lose value; and are not bank guaranteed and are available only in jurisdictions where an offer or solicitation of such products is permitted under applicable laws and regulation.

CFA® and Chartered Financial Analyst® are trademarks owned by CFA Institute.


What Are the Risks?

All investments involve risks, including possible loss of principal. The value of investments can go down as well as up, and investors may not get back the full amount invested. Stock prices fluctuate, sometimes rapidly and dramatically, due to factors affecting individual companies, particular industries or sectors, or general market conditions. Value securities may not increase in price as anticipated, or may decline further in value. To the extent a portfolio focuses on particular countries, regions, industries, sectors or types of investment from time to time, it may be subject to greater risks of adverse developments in such areas of focus than a portfolio that invests in a wider variety of countries, regions, industries, sectors or investments. Actively managed strategies could experience losses if the investment manager’s judgment about markets, interest rates or the attractiveness, relative values, liquidity or potential appreciation of particular investments made for a portfolio, proves to be incorrect. There can be no guarantee that an investment manager’s investment techniques or decisions will produce the desired results.


1. Source: The Washington Post. “Was it a blue wave or not? That depends on how you define a wave,” November 2018.

Get Content Alerts in My Inbox

Receive email alerts when a new blog is posted.