By this time next month, we’ll know who the next President of the United States will be or the next four years. The phone calls and messages I have been receiving about fears of the election have been growing in size. I thought it would be a good idea to revisit a previous blog I wrote explaining the stock market and Presidents. Since the COVID outbreak, we have seen unprecedented moves in monetary policy (the Federal Reserve). The Federal Reserve is going to allow inflation to slowly creep up if need be, tremendous increases in their purchase programs, thus, a tremendous increase in their balance sheet, historically low interest rates which makes the cost of capital and borrowing extremely cheap relative to historical standards, etc. All of these initiatives ripple through the economy, and the financial markets at large, and create tremendous secular tailwinds for financial assets. I think it is important to reiterate a previous post I’ve written discussing the topic of Presidents and markets and what one might expect going forward.
Let me pose this question to you: Do you hear more information on daily Presidential happenings in Washington affecting the stock market, or do you hear from the companies themselves that are actually traded in the stock market? You probably said it’s the former, but even if you hear more on the Presidential happenings in Washington, is that the right way to look at market moves long-term? I would argue no.
To start: What drives the price of stocks? The quick, short-hand, answer is current projections of future growth (or lack thereof). In truth however, there are many different factors that determine the price movements of markets: economic conditions, politics, natural and man-made disasters, and market psychology (1). Recently, it seems like every day market movement has to be filtered through the lens of the craziness in Washington and the twenty-four-hour news cycle before any fundamental market news gets digested, much less talked about. Although the impact on Presidential news can affect the markets, in the long-run (historically speaking) it matters less than what you may think. That can also extend to who has majority control in Congress as well.
One of the sayings I always like to turn to in the event a client calls or emails me worried about Washington’s impact on the markets, I always say, “Okay, I hear you, but what does (*insert any Presidential occurrence*) have to do with the quarterly earnings of (*insert any company*)? Now you can use any particular company or sector in the economy, but I pose that question to them because it forces them to take a step back and look at the big picture. Long-term market drivers are more sector-related and company specific as opposed to anything Washington or a President throws our way.
Don’t believe me or are a bit skeptical? Below you’ll find a long-term chart of the S&P 500. Focus on the years on the lower part of the chart (x-axis) and think about previous administrations, world events, etc. To me, the biggest thing that sticks out is the charts goes from the lower left to the upper right at almost any stretch of time. There are of course downturns along the way, but the long-term trend line is up.
It is important to note that the S&P 500 index is unmanaged and cannot be directly invested into, and that past performance is no guarantee of future results.
So, while the President can influence the economy through policies and economic agendas which can impact the stock market, the President probably gets too much blame and too much credit when it goes down or up (2). Next time you hear about Washington and the stock market in the same sentence, think about that stock market chart, and hopefully, you can remember the points I’ve made here.
I want to extend a big thank you for taking the time and reading my weekly blog. If you have any questions or would like to schedule a sit-down meeting to discuss more of your financial future, please contact me at 610-374-6249 x114 or visit my website mlistmeier.wradvisors.com
Sources
1https://finance.zacks.com/factors-affect-stock-market-2405.html.
2https://www.investopedia.com/presidents-and-their-impact-on-the-stock-market-4587369
Photo credit - https://pixabay.com/photos/the-white-house-washington-dc-1623005/
This material represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. This is meant for educational purposes only. It should not be considered investment advice, nor does it constitute a recommendation to take a particular course of action. Please consult with a financial professional regarding your personal situation prior to making any financial related decisions. (10/20)