An increase in questions and concerns with the upcoming election inspired me to look in the archives for a blog I wrote about four years. Much of this still applies today.
Experience has taught us that it’s best to keep our voting and investing decisions separate. Election seasons tend to bring higher anxiety and uncertainty to many. This election cycle is no different. With more and more communication available through social media and advance technology, it becomes difficult not to feel overwhelmed. It is important to keep the facts in mind. Well-positioned companies with stable leadership can create investment value regardless of who sits in the White House. History has shown us that markets have done very well, and had bouts of difficulty during the terms of presidents from both parties. When looking at returns of the Dow Jones Industrial Average (DJIA) since its inception in 1897, it is clear the stock market does not favor either party. For example, the DJIA had an annualized return of 10.7% from 1960-1964 during the John F. Kennedy/Lyndon Johnson term; it had the same 10.7% return from 1988-1992 with George H.W. Bush.
We have seen many terms where the majority in the House of Representatives and the Senate are not aligned with the Presidential party and progress is still made. Changes typically do not happen overnight but in increments. Systems are in place to have checks and balances in our lawmaking process. Energy, transportation and immigration policy have been debated for decades but few major changes have occurred. Policy changes are made but generally this happens in small steps and not one major leap forward.
Our perception of what will come from each party/candidate is often wrong. On election night 2016, US stocks dropped dramatically overnight, only to recover the next morning. At the time, the view was that the stock market feared a Trump presidency. The shorter term can reflect investors’ fluctuating emotional reactions to news flow, economic data, and even rumors. Over the longer term, stock prices reflect the measure of a company’s fundamentals. Consumers and Businesses have proven to have a far greater impact on the economy than the government. A study from the Bureau of Economic Analysis estimates that 82.4% of what happens in the U.S. economy depends on you, me and the businesses we work for and patronize while 17.7% is accounted for by the government input.
The current election season has been emotional and polarizing. Covid-19 is a challenge. This has happened before and, likely, will happen again. If we look back at previous presidencies, both popular and unpopular, we see history suggest that the market is resilient and indifferent to a president’s approval rating. There have been challenging and tough fought campaigns starting as far back as John Adams VS. Thomas Jefferson in 1796. Our country has persevered through difficult cycles and has all of the essentials to continue to do so.
Lisa A. Dugan
Posted October 2, 2020