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September 28, 2020

“Presidential Elections Don’t Matter (for investments)”

Author: Marty Moore, CFP®

Such was the title of a recent article by John Rekenthaler from Morningstar, Inc. 

In another article from Vanguard, they wrote: “Elections matter, but not so much to clients’ investments”

But wait you say…
If (Trump/Biden) wins I think the market is going to crash!  The economy might collapse! 

You don’t have to read Rekenthaler’s article, or the one from Vanguard, to determine their perspectives on the issue – the titles let you know right up front.  If, however, you want to understand their reasoning, here’s the link to the Rekenthaler article: https://www.morningstar.com/articles/1000663/presidential-elections-dont-matter-for-investments

The Vanguard article is password protected for advisors only; however, here is a general article that provides the same data and reasoning:
https://investornews.vanguard/what-u-s-elections-mean-for-investors/

What about past elections?  Does history offer any guidance? 
 
Below is the average annual total return of the S&P 500 under the last six presidents, three Democrats and three Republicans.
 
D – Barack Obama (2008-2016)                       7.5%
R – George W. Bush (2000-2008)                   (3.7)%
D – Bill Cinton (1992-2000)                             16.3%
R – George H.W. Bush (1988-1992)                15.6%
R – Ronald Reagan (1980-1988)                     15.7%
D – Jimmy Carter (1976-1980)                        11.9%
 
            Source: Political Calculations; S&P 500 index with dividends reinvested
 
Viewed another way, here’s those returns ranked from best to worst.
 

  1. 16.3%  Democrat
  2. 15.7%  Republican
  3. 15.6%  Republican
  4. 11.9%  Democrat
  5.   7.5%   Democrat
  6. (3.7%) Republican

It’s hard to make the case that our investments will surely perform better/worse under a Democratic/Republican president.

In the long run it’s not who’s in the white house, it’s the health and vibrancy of our economy that matters most.  The statistical evidence isn’t there to make the case otherwise.  I think most investors understand this.

The real concern

Still, the question often comes up: “I’m concerned about the election.  Shouldn’t we be making major shifts (reducing risk) in our investment plan?”

I think the real concern is not that the market is in for an extended, long-term bear market.  It’s more about the fear of a major decline if Trump/Biden wins.

Here again, I don’t know that history offers any guidance on what generally happens right after an election. 

But politics have never been more emotional than they are now.  And emotions can move the market.

So, I do think we have to be prepared for the possibility of extreme volatility in the market leading up to and after the election.  And because it could be weeks, maybe months, before we know the outcome of the election, volatility could persist.

(Side note:  I have never liked the word “volatility” but it serves a purpose.  It’s one word, much more convenient to use than writing “unnerving, big swings, up and down in the market that are usually short-term in nature but can scare the you-know-what out of us”.)

So, I fall in line with the views of Rekenthaler and Vanguard, and with Brian Levitt, Global Market Strategist for Invesco, who in his recent article, 10 Truths No Matter Who Wins the Election, wrote:

“It’s okay if you don’t like the President.  The market doesn’t care.”

America and the Entrepreneurial Spirit

In late July, the heads of the four largest technology companies in the U.S testified before congress.  Here’s an excerpt from the statement from Jeff Bezos:

More than any other place on Earth, new companies can start, grow, and thrive in the U.S.  Our country embraces resourcefulness and self-reliance, and it embraces builders who start from scratch.  We nurture entrepreneurs and start-ups with stable rule of law, the finest university system in the world, the freedom of democracy, and a deeply accepted culture of risk taking.  Of course, this great nation of ours is far from perfect… Still, the rest of the world would love even the tiniest sip of the elixir we have here in the U.S.  Immigrants like my dad see what a treasure this country is – they have perspective and can often see more clearly than those of us who were lucky enough to be born here.  It’s still Day One for this country, and even in the face of today’s humbling challenges, I have never been more optimistic about our future.

You  can listen to his full intro here (about 5 minutes): https://www.youtube.com/watch?v=ffaeKnwunVc

We’re Flexible

As we continue to adapt to a “new normal” in age of Coronavirus, we are happy to schedule meetings by phone or Zoom.  But we would also love to have you come to our new office.  We take responsible precautions by wearing masks and cleaning all surfaces after each meeting.

Since we moved in mid-April very few clients have seen our new office, so here’s a short video.  We look forward to the day when everyone feels confident and comfortable being together again.
https://www.carrollfinancial.com/carroll-financials-charlotte-office-tour/


And finally, a little levity to end

The first presidential debate happens tomorrow night.  No doubt the fact-checkers will be out in force to confirm or refute claims made by each candidate.  Nowadays, sadly, accuracy too often seems to take a back seat to bias and personal political opinion.  Here’s to hoping the debate will be fact-based and informative.  We can hope…

As always, thanks for reading. 

Marty

Required Disclosures:

All investing involves risk, including the possible loss of principal. There is no assurance that any investment strategy will be successful.
The S&P 500 Index is a capitalization‐weighted index made up of 500 widely held large‐cap U.S. stocks in the Industrials, Transportation, Utilities and Financials sectors.

The Dow Jones Industrial Average is a widely followed market indicator based on a price-weighted average of 30 blue-chip stocks that trade on the New York Stock Exchange which are selected by editors of The Wall Street Journal.
A diversified portfolio does not assure a profit or protect against loss in a declining market.
Asset allocation is an investment strategy that will not guarantee a profit or protect you from loss.
You cannot invest directly in an index. Additional risks are associated with international investing, such as currency fluctuations, political and economic stability and differences in accounting standards all of which are magnified in emerging markets.
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Opinions expressed are not intended to be investment advice or to predict future performance.
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