Elections are overrated. At least from an investor’s viewpoint.
Only 1983 mattered
The fact is that they rarely mean much for markets. During my investing lifetime there’s only been one important election from a UK stock market standpoint, and that was Mrs Thatcher’s in 1983. Her initial election in 1979 is seen as a watershed; but from a policy standpoint it took several years for the changes in our political economy that are associated with her to take shape. Privatisation, the dismantling restrictive practices and trade union power, all swung into effect during her second term.
As a result the UK looked a very different place in 1990 than it did a decade earlier. And the stock market enjoyed a terrific period of performance following the disastrous 1970’s.
Looking back at all the other UK General Elections, I can’t honestly say any of them had much of impact on the market. Which is just as well given our era of perpetual political turmoil.
In the last couple of years we’ve had a surprise Conservative victory in 2015. That was followed swiftly by Brexit and Trump, which were more like shocks rather than mere surprises. On top of that, the French Presidential Election is upon us and Germany is next up in September.
And yet stock markets have sailed serenely on despite all this noise. Mrs May’s ‘snap election’ has however given a bit more impetus to a couple of market trends that were already underway.
Sterling has strengthened and no longer seems the basket case that many experts had predicted. This is causing weakness in the large cap FTSE 100 where overseas earners dominate. Smaller companies have resumed outperforming, and there has also been a better tone in domestic cyclical stocks like retailers and housebuilders. Over both one month and the last year AIM has been the best performing part of the UK market and this momentum is unlikely to be blown off course by the General Election.