Whatever you say Mr. President.......

Oct 23, 2020 | Jeremy Goldfarb


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From the investment desk

We are not here to argue politics, we are here to manage wealth. In the lead up to the 2020 US Presidential election, we will continue to focus on the election/investment theme, and when it's over......it's over. (perhaps sometime in January lol!!) 

 

An interesting article in the WSJ, sounds very similar to some of the recent posts on this page. The article looked at data from the the past 90 years or so as it relates to presidential/party control of the US government. What they found was:

 

  • 45 years during this period the same party controlled both chambers of congress and the presidency 
  • the remaining 46 years there was a split government (different variations -- see this post for more context)

As investors do we care about these outcomes? As it turns out, maybe not so much. Let's reflect:

  1. In the first situation where the Whit House and Congress were controlled by the same party, the SP500 gained an average of 7.45%. This included 30 positive years, and 15 negative years collectively. 
  2. With the other 46 years (split government) the SP500 average gain was slightly lower at 7.26%. Those periods collectively saw 29 up years, and 16 down years. (1 year was flat)

Not much difference between the two pictures. But if we look for little nuggest of difference, we find that more recently, the volatility leading into, and out of the presidential elections, has been higher. 

I would also like to point to one specific occasion. 

  • Back in 2000, when the election results between Bush and Gore were unclear the SP500 shed 1.6%. By the time things were sorted out in January, the SP500 had shed another 3.5%, while the NASDAQ saw a collective drop closer to 17% (although I am less focused on a sector specific index). 

I bring this up because it may closely resemble the potential outcome of the 2020 election if you are to believe a large contingent of commentators out there.

 

So what have we learned? Why all of this information Jeremy, why!!??

The prospect of an average return of 7+% sounds pretty good, but at the same time having to cope with 15 out of 45 years to the downside may seem like a grind to those less patient.

 

The long term investor who engages in proper portfolio management should be pleased with the outcome. Short term trading however represents a unique challenge due to the fact that it is difficult to determine the outcomes of any one specific event. 

 

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