US presidential primaries: Iowa delay a reminder for investors to steer clear of election volatility
- The unusual results delay in the Iowa Democratic caucus, which kicks off the race for the White House, is a reminder that investors should tune out the sound and fury of the long election process, and focus on fundamentals
This past week has not gone as expected. By the time of writing, I had thought, surely I would have something insightful to say about the upcoming United States presidential election.
As frustrated as I am about the Iowa caucuses, I should take a deep breath and remember not to let how I feel about politics overrule how I think about investing.
The primary process is complex, and different in the two main US political parties, but the simplest explanation is: before the nationwide election for the president in November, each party holds its own mini-election in each state to decide who will be on the ballot in November.
First up in the US presidential primaries is the Iowa caucus. I have a sentimental attachment to caucuses, having participated in my first at the age of four, but even I have to admit it is a pretty awful way to pick a president. It is slow, confusing and always chaotic. A caucus requires all supporters to gather in a physical location in each of the state’s precincts and be counted.
This system makes participation difficult for those who work evening shifts, cannot find childcare or are disabled. Temperatures in Iowa in February average minus-13 degrees Celsius, making it less likely that all but the most committed supporters will leave their homes.
There are usually many rounds of voting and people often switch their support between rounds of voting because one of their neighbours had persuaded them to come over to another candidate. All of this is to say that caucus results are usually slow to materialise, although this one is slower than usual.
Iowa is not particularly large. Yet, as the first state to hold its primary contest, it holds outsize influence in shaping the way the media covers and voters perceive the rest of the race. In 2008, Barack Obama was written off by a large portion of Democrats as “unelectable” until he won in Iowa.
Because of issues with reporting votes and confusing reports about turnout, it looks as though no Democrat candidate will be able to claim that sort of victory in time for the next primary contest: New Hampshire on February 11.
The Democratic Party in the US is divided between a more moderate wing of voters who want to get back to some political norms and a more liberal wing which thinks the system itself needs deeper reforms. Iowa’s divided result, as of writing, shows both camps have substantial support.
Whether you are like me and care deeply about American politics, or, despite your best efforts to preserve your sanity, cannot escape the constant coverage in every media outlet, we are going to be thinking about this race for most of 2020.
At the end of this year, it is very likely that different parties will still have control of different parts of the US government. Regardless of who wins the presidency, the House is likely to remain under Democratic control and the Senate under the Republicans. This means some of the most dramatic campaign pledges of candidates from both parties are unlikely to materialise.
It also means investors should focus on other things in addition to politics when making investment decisions, such as company fundamentals, interest rates and building well-diversified portfolios that can withstand the election-related volatility ahead.
Hannah Anderson is a global market strategist at JP Morgan Asset Management
