Hello. We trust this note finds you well.
As you might expect, we have received several inquiries regarding the upcoming presidential election on November 3rd. It’s no secret that the political environment in our country is arguably as contentious as it’s ever been. And, while there is certainly much cause for concern, we felt it is worth addressing that ‘panic’ should not be on the agenda.
We won’t bore you with a historical discussion about how the global markets typically perform when an incumbent wins or loses, which party wins the House or Senate, etc. The bottom line is the markets usually do well during presidential election years. This year is clearly an exception with the Covid-19 shock. It’s also worth noting that, typically, the 4th quarter of an election year is solid, performance-wise.
At the risk of highlighting the obvious, we believe it is also worthy of a reminder that this is a presidential election. There have been many in the past and there will be many more in the future. We have one every four years, rain or shine.
The fact that there is a very important election on November 3rd is a very known event. The fact that either Trump or Biden will win is also an obviously known outcome. The stock and bond markets, outside of the very short-term, rarely react to known events. A delayed Covid vaccine, Trade tensions with China, ramping up our economy, our sluggish recovery – these are all well-documented. Are they cause for concern? Of course. Will the market be surprised by any of the above? That doesn’t seem likely.
‘Knowns’ scare us. Unknowns scare the markets.
Unknowns are things like the current global pandemic, 9/11 and the fact the banks had a $200B+ ‘hole’ on their collective balance sheet back in 2008. Unknowns take a lot longer to recover from but, over time, we do typically recover.
The world will keep spinning on November 4th no matter what happens the night before. Exxon will still be selling oil, Apple will still be selling everything we don’t need but want, and tens of thousands of other companies will still be in business. Will there be changes, either way, over the next four years? Yes, there always are.
Could there be a negative reaction in the capital markets? Sure. That said, it will be short-lived. Noise, if you will. Remember the debt-ceiling ‘debate’/scare back in the summer of 2011? The stock market fell 19% in 12 days or so. Those who were scared sold out and were quickly left behind as the market recovered. The debt ceiling had been raised many times. But, because of the political environment and the media attention, there was a short-term panic. Short-term panic breeds opportunity in the markets. If the results of the election cause a short-term sell-off, we will take advantage of it.
What will still matter on November 4th is the fact that we all need to retire, or create retirement income. College planning still matters. Inflation will still be ever-present. The current ‘tug of war’ between a slow-growth global economy and very accommodative central bank (globally) definitely matters.
And, yes, Election Day does matter. And our presidential election will always matter. But fear of the outcome is not an investment theme. Panic leading up to Election Day should not drive long-term investment decisions. Democracy and capitalism have a much stronger impact on what really matters.
Please understand that we are in no way attempting to trivialize anyone’s concerns. Again, November 3rd is important. The issues are different for everyone. And those issues are important. We just feel strongly that rational behavior, as it pertains to the global markets, is also important.
Please do not ever hesitate to call us with your concerns. We are here to help. Enjoy what is left of summer…and remember to VOTE on November 3rd!…….
Ok, we sort of tricked you with everything written above. ALL of that was written in October of 2012, a month before the Obama/Romney election. Word for word aside from the parts italicized/bold. The goal isn’t to trivialize anyone’s concerns. The goal is to convey we’ve been here before. We are going to get thru the November elections and our world will keep spinning.
Our short thoughts on the current state the financial markets and the economy are fairly simple: We feel the markets are a bit ahead of the economy AND we believe ‘election nerves’ will be accompanied by volatility. We lowered equity exposure (sold stocks) in January near all-time highs and raised exposure in late February/Mid March (bought stocks) as Covid-19 fears gripped the global markets. In recent weeks we have lowered exposure as the markets are back to January levels. We look forward to whatever volatility is ahead…along with getting past the upcoming election.
Back in April, we sent out a newsletter titled “What Can I Control”. We get this question a lot when the markets get volatile and uncertainty enters the picture. One thing we urge you to take action on is your current mortgage rate. The Fed has lowered rates in response to the pandemic and mortgage rates are lower than they have ever been. Right now, rates at LJI are at 2.50% on a 15-year mortgage and 2.875% on a 30-year mortgage with a minimum loan amount of $150,000. The timing has never been better to take advantage of a refinance or purchase and we have three mortgage specialists at LJI to help you. Please reach out with questions.
Finally, the SEC has recently asked all investment advisors to design a brochure to help clients and potential clients better understand the firm’s investment advisory offerings, the type of clients they serve, how the firm is compensated, and any conflicts of interest the firm may have as they serve their clients’ needs. The formal name for the brochure is CRS Relationship Summary – ADV Part 3. The informal name is the Plain English brochure. As the informal name implies, it is a short, concise description of what a firm does and how they do it. Ours can be found here.
Your LJI Team