After 274 days, the stock market (as measured by the S&P 500 Index) found itself with roughly a five percent return (as of September 30, 2020). Look no further than the chart to the right to get a sense of the less than linear journey. An unforeseen economic shutdown followed by an even more surprising sizable stimulus package will do this to the stock market.
The market bottomed in March at a level not seen since February 2017. From there, as cooler heads prevailed, it has been an upward trajectory, with a hiccup here and there, to return the market to just
about where it was prior to the March collapse. Uncertainty no doubt has once again demonstrated its might over short-term market participants. That’s the story for the first nine-months of the year… how about the next three months?
Well, take your pick of the pending event that is causing agita amongst many investors. Could it be the unknown distribution timeline of a Covid-19 vaccine? Or, is it the lack of (or potential for) another fiscal stimulus? Or, the inability to forecast the extent of a Santa Claus rally? Or, the biggie… who will be the next President of the USA? Maybe more important, will we actually have a President elected on November 3rd?
As glass half-full guys, we believe the brightest minds of this great country (and beyond) will deliver a vaccine. And when it comes to the economy, even though politicians typically lack a sense of urgency, eventually they do what’s right for its citizens. When all of this happens, who knows… but we do believe life will return to normal, at some point.
The Presidential election is no different. The USA is the most successful democracy on the planet for a reason… it works! We will fairly elect a President in the near future. But, due to the current environment, this election year seems to carry even more consternation than typical.
The questions abound… What’s going to happen if Biden wins and we lose Trump’s pro-business approach? Is another four years of Trump, good or bad? And for our purposes, what does the election of either of these men do to the economy and subsequently, the stock market?
I’d hate to ruin some of the fun you might glean from handicapping the election, but for the most part, the answer to the above is… Nothing, nada, zilch! As you can see by the chart to the right, stock market performance is not bound by political party lines. Republicans are considered more business friendly, but that does not mean the stock market cannot rise during a Democratic presidency. The best returns have actually come during Democratic administrations. Most of us have been conditioned to expect the exact opposite.
As hard as it may be to believe, history clearly demonstrates that as investors we shouldn’t worry too much about who will be sitting in the Oval Office come 2021.
Yes, policies will change, taxes may increase or decrease, but over a few years businesses will adapt and the economy will continue on its natural path… upwards. Who is President will have some influence, but over a longer period of time, business will drive the economy, which will drive the stock market.
Patience is a virtue… every four years even more so.
Note:Nothing contained herein this letter should be considered to be investment advice, research or an invitation to buy or sell any securities. Chart(s) courtesy of Investopedia