We are clearly up for another divisive political season this fall. The proliferation of social media will certainly fuel-the-fire for many online feuds between family, friends, and complete strangers. Please note that the intent of this article is to look at politics from an investing perspective, agnostic of political preferences.
Expect to hear the candidates pander to the swing states. Sir Isaac Newton defined inertia so well in the 1600’s. The “Red States” will likely vote Republican again in 2020, and the “Blue States” will likely vote Democrat.
Both sides will make grandiose pledges. Those campaign promises rarely materialize. Getting excited, or worried, about a candidates promise to save the country from the clutches of disaster is probably not worth the energy. We still do not have a balanced budget, the private sector is likely to get to the moon before NASA, and I cannot do my taxes on one sheet of paper.
The talking heads of financial media are predictably going to tell you about how stock markets perform in election years as we approach November 3rd. Stock markets are typically up in election years. The stock market is up most years though, so maybe we shouldn’t put too much credence in these factoids. Political preferences aside, the correlations between the controlling party and stock market returns glean little insight for investing. Many of the pundits claimed that a Trump victory in 2016 would plummet the stock markets. That also proved to be incorrect. Below is a color-coded chart of the S&P 500 by presidential party in control of the White House. More than not the chart is going up; sometimes it’s red, sometimes it’s blue.
President Trump is far from the first politician to take issue with the media. Even the founding fathers of this great country, who were pioneers of free speech, disliked it when the newspapers printed negative comments about them. Modern “smear ads” and contentious live debates don’t hold a torch to some of the personal vendettas between politicians from history. July 11, 1804 Aaron Burr (sitting vice president) won a duel with Alexander Hamilton (sitting treasury secretary). In many ways, politics has become quite civilized.
Long-term investors should invest for that, the long-term. The stock market is much more complex than one person in Washington DC. Yes, politicians can influence the economy. So can monetary policy; arguably, to a much larger extent. The ingenuity and innovation of business is what really drives the future profits, which should drive the future prices. In the end, there are always risks associated with investing. “Riskless” investments don’t offer much in the way of returns.
"You can't invest for the future in the future."
-Rob Kapito, Blackrock President
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This material represents an assessment of the market and economic environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. Forward-looking statements are subject to certain risks and uncertainties. Actual results, performance, or achievements may differ materially from those expressed or implied. Information is based on data gathered from what we believe are reliable sources. It is not guaranteed as to accuracy, does not purport to be complete and is not intended to be used as a primary basis for investment decisions. It should also not be construed as advice meeting the particular investment needs of any investor.
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'The Standard & Poor's 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. It is a market value weighted index with each stock's weight in the index proportionate to its market value.