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Sound Advice: October 28, 2020

 “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® 

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