Hello & Happy Fall. We trust this note finds you well but perhaps anxiously awaiting the Presidential election results in (hopefully) roughly three weeks from now. If you’re not anxious – even better.
However, based on many of our conversations of late, there is definitely a lot of concern out there. And there should be – Presidential elections are important. While we provide some financial commentary below, we encourage all clients to read our newsletter from 4yrs ago as it is applicable now just as it was then and every 4yrs prior. Presidential Election 2020
The most common client conversation eventually goes something like: “If he/she wins, the world is going to fall apart – should we go to cash?” Most of you who have read our past communications and/or have been a client for a while probably know ‘selling everything’ is NEVER going to be something we advise or agree on.
Selling everything because of a known event is never sensible. Markets are smart – smarter than investors. Markets don’t really care about elections. People do. People are emotional. But if we let our emotions control our investment decisions we lose over time.
We’re not going to predict who will win. Nor what will happen to the markets if he/she wins. Nor which sectors/stocks will rise/fall based on the election results. There are countless (mostly worthless) opinions/articles/etc. floating around with that type of drivel in it. 99% of these pieces are about eyeballs/clicks/ratings…not facts or hard market analysis.
At LJI we are going to continue to believe in capitalism. And, yes, democracy. And optimism. And history. History has proven again & again – through decades of Presidential election issues/scandals/controversies – the US Economy & Capitalism win. We want to own those long-term…essentially forever. That won’t change on November 6th.
Many articles and studies opine on what the markets do, or have done, if a Republican vs. a Democrat wins. And we’re confident you may have specific opinions on that too. From a stock market perspective, the following history lesson is one of our favorites:
Since 1950 (the S&P500 was created in 1949), if you only owned the S&P500 during Democratic administrations, and you started with $10,000, you now have $421,450 (thru 6/28/24). Had you invested that same $10k during only Republican administrations, you’d now have $77,720. The same $10k invest throughout ALL administrations since 1950? $3,280,000…please read that final figure again.
Again, over time, the stock market does not care about politics. People do. And caring about politics is more than OK. Our goal/role here is to prevent our clients from getting too distracted by short-term uncertainty, or emotions.
Will there be volatility in the next few weeks? Probably. There typically are some wild swings surrounding the 1st Tuesday of November every 4 years. Does it make sense to ‘bet’ on that volatility? We don’t believe so, and certainly not via a major ‘all or nothing’ move in your portfolio.
2022 was a brutal year for global stock and bond markets (worst on record). The recovery since has been very welcome. Recently we reduced exposure to equities in most of our portfolios. Why? One reason is an expectation of election driven volatility. A bigger reason was because it is time to rebalance portfolios closer to long-term targets. We’re positioned well for volatility (for any reason) and we look forward to taking advantage of it.
And let’s not forget, economically-speaking, things are strong in the U.S. We have, in general, recovered from the interest rate shocks of 2022. Unemployment is very low. Inflation has come down to a great degree. Housing is strong. The stock market is hovering near all-time highs. One of two election results are known. The debates didn’t move the needle relative to the markets. We will likely still have a grid-locked Congress on November 6th (which financial markets like).
That said, there are certainly major issues out there. There always will be and we’re very aware of that fact. Election cycle-driven financial markets fear is temporary and always will be. Every 4yrs the concerns are different, but the fear always rhymes.
One last historical fact: Since 1960, aside from the obvious, what do John F. Kennedy, Lyndon Johnson, Richard Nixon, Jimmy Carter, Ronald Reagan, George H. W. Bush, Bill Clinton, George W. Bush, Barack Obama, Donald Trump, and Joe Biden all have in common (sorry Gerald Ford)? While in the Oval Office, the stock market hit an all-time high. Capitalism wins. We don’t envision that changing anytime in the coming decades.
Thank you. Please never hesitate to reach out to us with any questions or concerns.
Sincerely,
Your LJI Team