Elections and the Stock Market

Elections and the Stock Market
Picture of Walter Wisniewski, CFP®

Walter Wisniewski, CFP®

The market continues to reach new highs although many stocks in the S&P 500 are still below their previous highs. For example, as of this writing, 40% of S&P 500 stocks are 20% below their highs. The market is reaching new highs on just a handful of stocks; including Microsoft, Facebook, and Amazon, etc. In recent days we have been receiving a significant amount of interest from our clients as to the direction of stocks and the effects of a presidential election.

A recent article in Barron’s magazine discussed analysis by Ned Davis Research Chief Equity Strategist Ed Clissold. He mentioned stocks have risen more under Democratic presidents, with the Dow Jones Industrial Average rising 7.8% a year, versus 3.3% under Republican presidents. When both the White House and Congress have been held by Democrats the Dow gained an average of 3% annually, compared with 7.1% annually when Republicans have held both the Presidency and Congress.[1]

Our portfolios consist of equities, fixed income, and cash. Equities provide the growth to outpace inflation and taxes. If the equity market declines on the fears of election uncertainty it will provide us the opportunity to purchase more equities at discounted prices by moving fixed income and cash to equities.

Aside from the statistics of market returns as they relate to governmental political parties, it is very difficult, albeit impossible, to predict how markets will react (and in turn, how we structure our portfolios) based on any impending election. Under four years of Harry Truman from 1948 through 1952, the Soviets tested their first nuclear weapon, and our country was torn apart by the threat of communism; ordering troops to South Korea to stem the spread of communist influence.[2][3] During these four years, the market increased by approximately 50% between Election day 1948 and Eisenhower’s inauguration in January 1952.[4] Truman’s defeat over Thomas Dewey in the 1948 election was one of the most stunning upsets in political history, as the Chicago Daily Tribune erroneously reported “Dewey Defeats Truman” in a banner headline on the front page of the newspaper.[5] Interestingly, many of the printers who operated the line casting machines for many Chicago newspapers were on strike in 1948. The newspaper relied on information from a veteran political analyst Arthur Sears Henning, who had previously correctly predicted the Presidential elect four out of five times in the past 20 years.

As First Trust Chief Economist Brian Wesbury recently commented in his Weekly Outlook, “One election does not make or break a nation.”[6] We will continue to help our clients manage/weather any volatility that we may see as a result of the impending election, and as our nation (and the world!) continues to open up in light of the impact of the virus and government shutdowns. We will continue to avoid making investment changes based on political conjecture. As history explains, we just don’t know what will happen.

Required Minimum Distributions

Your required minimum distribution is the minimum amount you must withdraw from your account each year. You generally must start taking withdrawals from your IRA, SEP-IRA, SIMPLE IRA, or retirement plan account when you reach age 72. The age was recently raised from 70 ½ to 72 ½ with the passage of the SECURE Act. Roth IRAs do not require withdrawals until after the death of the owner.

Due to the current pandemic, all Required Minimum Distributions for the year 2020 have been given a reprieve.Although you may still withdraw if your needs require additional income, the mandated withdrawal investors must usually take by the end of the year has been suspended. This also applies to Inherited IRAs. While 2021 should return to normal, we will adjust your distributions accordingly and will be in contact with you with any updates to this rule.

The Covid-19 Crisis

The social, political, and economic challenges brought about through the Covid-19 Crisis are daunting. Nevertheless, they may be a catalyst for change. Everything around us is in constant motion. Rick Goodman, a leadership speaker said, “One reason people resist change is that they focus more on what they have to give up instead of what they have to gain.”

We have said for years that in every adversity is the opportunity for something new and different to come into our lives. We should embrace our fears and welcome them like an old friend. Our clients who have added additional money when the markets declined in March have been well rewarded.

The pandemic has significantly affected our process of meeting with clients. Due to the lockdown, we had the opportunity to use more conference calls and live Zoom (video chat) calls. We hope that this virtual experience has been meeting the needs of our clients as we are all continuing to stay safe and healthy and adhere to the proper social distancing guidelines as we navigate the pandemic.

There are many factors that are encouraging for equities and being fully invested in stocks. The Federal Reserve has been very active in keeping rates near zero and promising to support the economy. Federal unemployment support is easing, but still able to support workers whose jobs have been lost due to the pandemic. As our nation continues to get used to a “new normal” we are all finding creative ways to work, attend school, get some exercise, and stay connected with one another. Our long-term belief in the stock market continues to be strong and economic growth will prevail. What once was an idea scribbled on a napkin (Amazon) or a group of friends tinkering around in an Albuquerque garage (Microsoft), what will be the next great company, born out of the Great Pandemic of 2020?

Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. Information provided in this blog is for educational purposes only and is not intended to be, and you should not consider anything to be, investment, accounting, tax or legal advice. If you would like investment, accounting, tax or legal advice, you should consult with own financial advisors, accountants, or attorneys regarding your individual circumstances as needed. No advice may be rendered by Arcadia unless a client service agreement is in place. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.

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