Skip to main content

 “Stop trying to predict the direction of the stock market, the economy or elections.”                                                                 Warren Buffett

As we get closer to Election Day, people are increasingly concerned about the impact on the stock market of the possible results.  Although it’s easy enough to waste an extraordinary amount of time substantiating the theses on both sides, the reality is that from any reasonable time perspective, the net result will not be much different. 

It’s quite likely that the immediate reaction will be a sharp uptick in volatility, but the longer-term probability is that the market will rise the majority of the time, as it always has.  The chart below tells the story:

What is most obvious is that the market has risen as time has passed and there’s every reason to expect that this will continue in the future.  Even if we take a closer look, there is no basis to come to a different conclusion.

In the six most recent presidential terms, the widest gains were registered while Bill Clinton was in office.  The leanest time was that of George W. Bush, which included 9/11.  The rest of the results were evenly split between presidents from both parties.  For that reason, it would be counterproductive to think in terms of being invested only when a Democrat or a Republican was in charge.

Most folks’ key concerns now and certainly well into 2021 will be where we stand with respect to controlling the pandemic and its negative effects.  What’s especially troubling is that as the seasons change and the opportunities for social distancing become more difficult, it is likely that the infection rate will rise further. 

There is some good news.

Health care facilities have gained experience in treating those affected with the virus and therapeutics such as dexamethasone and remdesivir have been shown to lessen the impact and reduce the duration of the illness.  What’s more, several vaccines are in Phase III of clinical trials and there may well be successful conclusions late this year or early next year.  From that point, it will be a matter of production and distribution, suggesting the possibility of broad availability by late spring/early summer.

Depending on the election outcome, we may be looking ahead to a follow-up stimulus plan, a substantial infrastructure plan, and further changes in taxes.  A follow-up stimulus plan, if of sufficient magnitude, may lead to a resurgence in the economy, albeit akin to a sugar high.  Thereafter, we may have several years of moderated business expansion.

However one views the path ahead, the one constant will be change.  One hopes that it will be for the better.

N. Russell Wayne, CFP® 

Comments

Popular posts from this blog

Sound Advice: May 13, 2020

Reality Check On the heels of the market plunge of late February and most of March, investors did a sharp about-face in April, bidding up shares at one of the fastest rates in recent history.  Although this recovery probably provided at least temporary comfort from the plunge, it would be unreasonable to view the rebound as a sign that things are all better.  They are not. For one thing, we are now in the midst of earnings reason, when companies report their quarterly results.  Some may have good news for the March quarter, but as we move through the current calendar quarter, only a few will be able to show continuing improvement.  Against the broad backdrop of U.S. business history, the months just ahead will almost certainly prove to be among the worst, from the standpoint of year-to-year comparison. With more than 30 million people filing claims for unemployment insurance, it would be difficult to expect anything other than bad economic news.  Who knows how many of these

Sound Advice: July 8, 2020

Jobs Are Up, But So Are New Infections Through the spring months, m ost of the economic data was extremely negative, with record declines in employment and consumer spending.  The speed of that decline had no modern precedent. We are now in a recession.   The shortest recession on record occurred in 1980 and lasted just six months.  Second place goes to a seven-month recession in 1918-19, which was tied to the Spanish flu pandemic.  The big question is: When will this recession end? Given surprisingly strong data in May, April may have been the bottom of this economic cycle.  If so, it will have been the shortest recession on record.  With massive support from the Federal Reserve, the federal government, and the reopening of previously closed businesses, employment surged unexpectedly.  At the same time, pent-up demand, stimulus checks, and generous unemployment benefits led to a reacceleration of commercial activity. Still, not all is rosy.   In his recent testimo

Sound Advice: July 22, 2020

Fixed Income: In a Fix Typically, the construction of an investment portfolio has begun with an approximate balance of 60% in equities and 40% in fixed income instruments.   Fixed income generally means bonds, but that includes bond funds and exchange-traded funds holding bonds.   The equity portion is intended to be the driver of capital appreciation over extended periods of time and the fixed income portion is supposed to provide stable, albeit more moderate ongoing rates of return. The theory behind this approach is that as the time periods measured have lengthened, the relative risk of holding equities has diminished while the returns they have generated have been higher than those of other asset classes.   What equities do in the short term, even a year or two, is often anybody’s guess.    To the extent that fundamental analysis can help toward determining future equity values, investors need to look ahead three, four, five years or more before reasonably expecting t