Does the election matter?

Nov 13, 2020 | Phil Knight


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Does the election matter?

There is much discussion as to how the markets may react to the recent (non-) election results in the U.S. and how as investors we should rebalance our portfolios. First and foremost, it should be noted that making rash investment decisions based on election results has been a risky one, with many, potentially more important, factors being in play than just the political party that prevails. For example, Trump is supposedly more fossil fuel friendly, and we know how that trade has worked out over the last four years.

Stocks actually tend to rise regardless of which party is in power. In the 45 years between 1929 and 2019 (with a majority government), the S&P 500 gained 7.45% (on average), with 30 up years and 15 down years. In the other 46 years (when there was a split government), the S&P 500 gained 7.26% (on average), with 29 up years and 16 down years (and one flat year). We should also remember that we are dealing with politicians here, and what they say they will do, and what they actually do, often has very little in common.

More important, is likely the position taken by the Federal reserve, which is currently very accommodative – meaning that interest rates are likely to remain low. When the federal reserve is raising interest rates, the market struggles; when it lowers rates, it generally prospers.

Coupled with the above, corporate profits have remained strong, and with the recent emergence of a possible covid vaccine, economic activity is likely to continue with manufacturing activity hitting a two-year high in September.

Of course, as always we need to remind you that we are not buying the market, but rather a group of select companies that we believe will best prosper in the current economic environment (which is constantly changing), have dominant market share, and world class management.

Oh, and in case you were wondering, and listening to the critics who postulate that the market is too expensive, it might be worth checking the facts. The Dow Jones index is at the same level today as it was at different times in the last one, two and three years ago.

Stay safe, stay healthy, and stay sane.

Sincerely,

Vice-President and Portfolio Manager

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