If you have money tied up in stocks and shares, how the FTSE responds to general elections could be a concern.
With Labour’s losses in this week’s local elections, the good news is research shows that clear-cut election campaigns tend to have a positive influence on stock markets.
Who wins is less important – it’s the way they win that counts.
Investment firm Schroders concluded this after analysing how the FTSE performed in the final six weeks of the last seven general elections.
In three, Labour victories in 1997 and 2001, and the Tory win in 1987, the predictions were reasonably certain before polling day.
Markets rise on certainty
When the polls have signalled less certainty, the markets dropped. This happened when the Tories and Lib Dems formed the coalition government in 2010.
The early polls for the General election 2017 are quite clear.
On May 2, Theresa May and the Tories had a 16-point margin (46.3%) over Jeremy Corbyn’s Labour (29.1%) with the bookies offering 1/20 on a Conservative victory.
Labour seems up against a tidal wave of unpopularity mainly against leader Corbyn.
Although he has the support of the radicals, those Labour voters who turned to UKIP have deserted the Leave campaign and moved to the Tories as May takes on UKIP’s mantle of pursuing a hard Brexit.
The local election results also showed Labour’s industrial heartland is under pressure in the North.
No guarantee for investors
On the back of the snap election announcement, the Pound hit a six-month high, with the FTSE dropping.
The price of sterling and the FTSE are inextricably linked because most of the companies on the index sell overseas and a weak currency gives higher revenues.
“It makes sense that markets perform well during times of political stability,” said James Rainbow, Co-Head of UK Intermediary Business at Schroders. “It’s useful to know that this has also applied during the run-up to elections over the past 30 years, although there’s no guarantee that will be the case for this election.
“During those previous periods, investors may have moved money elsewhere, maybe into cash. Bonds, which have lower volatility than equities, can also prove popular at times of uncertainty. But long-term investors in the stock market should be well used to the idea that they’ll be periods which are a little rocky, especially around political major events.
“The best option is to remember your original reasons for investment and stick to the plan.”