Lean to the left
Lean to the right
Stand up, sit down
Fight, Fight, Fight
That old high school basketball cheer sums up US politics in what is fast becoming a Presidential election with little discussion about issues and lots of personal insults. Both front runners, for the Ds (Hillary) and the Rs (the Donald), have high negative approval ratings and according to the WSJ are “increasingly unpopular”.
I could go on, but our CEO, Evan Rose’s admonition “We are analysts, not political advocates”, weighs on me and suggests discretion is the better part of valor!
The question we address here is what the elections means for the financial markets and your portfolio. Cutting to the chase; probably not much, especially if we continue to have divided government. The founders created a system of checks and balances to guard against extremism and “factions”. Congress can do a lot to block presidential ambitions.
The WSJ recently weighed in with this headline: “Survey says US election turmoil fuels economic uncertainty. More than 80% of economists see downside risks to economy if Trump or Sanders is elected.”
Economists view Bernie Sanders socialist agenda is clearly worrisome and Trump is just unpredictable. Hillary is more mainstream and conventional. Inside the beltway and Wall Street no doubt view her as the least problematic.
Markets don’t really like change and uncertainty. It increases “risk premiums”. The rhetoric on the campaign trail is anti-business, anti-trade, and anti-establishment for both parties. This isn’t going to change, so we expect more market volatility stemming from “politics” through November 4. But it would be mistake to change portfolio allocations (even temporarily) that were built on long term planning and reasonable assumptions.
The chart below is from our friends at JP Morgan. The data speaks for itself but check out the south-east corner which depicts the stock market and economy under the Democrats and Republicans since 1945. Both markets and the economy have done best under the Democrats. It could be a function of the time period chosen or other reasons. In any event, stocks and the economy go up when either party is in power.
MRB Partners states that “presidential election years have historically delivered pretty good stock market returns, with the median gain at 8.3% since 1880 compared to 7.0% for all other years.”
Many feel it is turning out to be a rather disappointing and undignified election campaign. The best encouragement I can muster is to say that “the Republic will endure” and it won’t kill your portfolio. Hang in there.
Jeff Pantages, CFA®
Chief Investment Officer