Is there a link between the markets and our next President? Is it really the economy, stupid? Could it be that utilizing polls or stock market indicators to gain an edge won’t give us an answer this time? After all, polls leading into the most anticipated Presidential debate of our time had the race for the White House locked in a dead heat.
Since 1928, the S&P 500 has correctly signaled which party will win the presidential election, incumbent or challenger, 19 out of 22 times, according to an article by Bloomberg (http://bloom.bg/2d7xJ96). President Obama won his inaugural term in the midst of the Great Recession. The index was up 2.5% in the three months leading up to his reelection. With a little over a month to go in this quadrennial three month window, the S&P 500 is down 1.37% through Monday’s debate. That could be erased in a single day, giving us little to go on for the time being.
Professor Allan Lichtman who has correctly predicted the popular vote in every presidential election since 1984 says in a Washington Post column that his model favors Donald Trump (http://wapo.st/2d4BP46). Even Mr. Lichtman seems skeptical of his model proving correct this time around.
Earlier this summer we saw global stocks stage a rally on the backs of poll numbers showing that the UK would vote to stay in the European Union. That was obviously the wrong conclusion. Anti-establishment views are gaining steam across the world and have proven difficult to gauge in traditional polling numbers.
How then should we view the investment landscape with a very different kind of presidential race, and should we make any major changes to accommodate it?
It could be that the winner doesn’t have an effect on the longer term prospects of our economy. I don’t believe the office holds the same power that it once had. One of the better known geopolitical minds, George Friedman, had an interesting piece out earlier this year called “Why the President Isn’t All That Important” (http://bit.ly/2di5vsA) and wrote, “In the end, policies, like plans in war, die the first day in office.”
Much like the Brexit vote, we may see an initial selloff with fears of disruption but also see a move back up as people realize that change is slow and hard to come by. There’s no way to prove this out, but I think within a few months the markets will be at roughly the same point with either candidate.
What I am optimistic about is the ingenuity and impact the American people have as a whole. Much of the job growth since the Great Recession and attributed market gains have come despite the drag that government has had on the overall economy. We are a people that find solutions. Promises in cloud computing, biotechnology, 3D printing, vertical farming, clean energy, etc. should serve as the backbone to drive job growth going forward. These advancements will create enormous amounts of jobs, significantly lower costs and increase the quality of life.
I think any knee jerk reactions are unwarranted before or just after the election. Your financial decisions should be based on principles that can withstand many different situations. Business will continue on and you and I will keep getting up each day doing our part to keep this a great nation, regardless of who resides in the Oval Office.
(Aaron Pickert, CRPC is Associate Advisor at Stewardship Capital. Past performance is no guarantee of future results. Advice is intended to be general in nature.)