We Voted, Now What?

america votesEveryone except media companies selling advertising will be pleased that today marks the end of the frenzied cycle of campaigning for a few days. True behind-the-scenes strategists might even take off a day before launching the 2016 presidential election campaign.

It is back to work, onward and upward, for the rest of us. We will carry on and do our best to satisfy ourselves and our families through the mazes of our lives. They are made more or less complicated depending upon the laws and regulations passed by our various levels of government. How does all of this affect investment markets?

As you know, there are lies, damnable lies, and statistics. I often like statistics, especially those someone else has painstakingly collected and analyzed. The best source for investment market statistical probabilities is still The Stock Trader’s Almanac of Jeffrey Hirsch and his father, Yale. It is entering its 48th year of publication.

In it, we find a goldmine of material. It will not give us specific guarantees, but rather provides a helpful lens through which to look for rather dependable, habitual trends or results. It often uses the Dow Jones Industrial Average Index as its benchmark. For example, 2013 was a post-election year.

With a Democrat in the White House in the first year of his term, those years have been almost always profitable stock market years. Only 1977 under President Carter was an exception, with the DJ index losing 17 percent. For Republican presidents, these have been poor years. But for mid-term years, such as 2014, the reverse is true and stocks have fared well during Republican terms.

So polishing the crystal ball, the stats are clearly on investors’ side for 2015. Going back to the Eisenhower years of the 1950’s, there is not one single instance of a loss for the Dow Jones index during a pre-election year. The worst were a 4.2 percent rise in 1979 under Carter and a 2.3 percent gain under Reagan. The latter year contained the unforgettable crash of October 1987. But you probably did not remember that the entire year still ended with a gain.

There is one other factor going for us in 2015. Nature abhors a vacuum, but stock market investors love one involving political power. Assuming that the Republicans still hold the House today and the Democrats did not gain any Senate seats yesterday, and President Obama is in the oval office, very little of much consequence will come through the sausage grinder of federal law-making. Businesses can usually make better plans if it is more likely that the rules will not be scrambled for a couple of years. But this also assumes some limits on the President’s ability to issue every Executive Order he could imagine. (Oops, and I was behaving myself so well!)

Business fundamentals are in great shape. We have the usual outliers—black swans some call them—of ebola, ISIS, and a half dozen unknown unknowns lurking somewhere. But I am more than cautiously optimistic about the next fourteen months for stock investors.

 

(Past performance is no guarantee of future results. Advice is intended to be general in nature.)

November 5th, 2014|Categories: Economy, Government, News & Events|