Want to know what the impact of this year’s election?
Our clients have been telling us, and we hear you. You want to know what the impact of this year’s election may have on your portfolio management. We do not base investment decisions on politics. Markets certainly do react in the short term, to election results for instance, and those reactions can be short lived - very short lived with the election of Donald Trump in 2016. Back then, the Futures markets indicated an extreme sell off as markets prepared to open the next day, but markets rallied in the opposite direction.
Despite our political beliefs, no matter how strong, are not correlated to our portfolio performance, beliefs are not guaranteed to move in the same direction as performance. Take for example since 1977, note the S&P 500 performance under all administrations, regardless of political party, are with an investment of $10k:
- The Democrat-only portfolio, $849,016.00
- The Republican-only portfolio, $162,578.00
- The Apolitical portfolio, $1,600,000.00
Questions about the economy are more relevant for portfolio performance. The business cycle is more relevant in the short-to-intermediate term on performance, and also relevant in the long-term, that market performance has been positive over time.
- Over any period of time, from the 5-year average performance to the 96-year average performance of the S&P 500 has been just under 10%.
- About 3 out of 4 years the stock market is positive.
This kind of average of gains vs losses, staying invested for the long term allows you to move the view of the stock market as a casino, and even if it seems like a casino, you have the opportunity to be on the “house” side with the odds in your favor. This is a simple view because there are still known risks.
The sequence of returns risk, when you make your first withdrawals from your portfolio in a down market. One way to mitigate the Sequence of Returns Risk approaching and early in retirement is a focus on financial planning. There have certainly been years during which a significant drawdown in portfolio values, and if that overlaps the year when you retire, that could cause problems. In addition, for each household, important metrics include risk capacity and risk tolerance. These metrics are taken into account during the financial planning process.
On to the seemingly persistent growth economy through all the current headwinds: high interest rates and historically high stock market valuations. We expect economic growth to slow down next year with high interest rates starting to take their toll on consumer spending, but growth should continue to be positive although smaller. Interest rates should decline with inflation declining. Earnings should remain strong through the end of the year keeping stock prices at historically high levels.
Today, in encouraging inflation news, odds are that the Fed lowers rates, impacting growth stocks. The NASDAQ down 2%, a decline in SP500 of 1%, and a small gain in the Dow. By contrast, the Russell 2000 is up by 3.5%. This is a big cyclical shift from growth, largely the big-7 stocks, to small and value stocks because of the inflation numbers and the increased possibility of lower interest rates. Small and midsize stocks have seriously lagged the large growth sector over the past 2 years. Asset allocation and diversification matter. Today is a whiplash day in market performance.
There is a reversion to the mean that historically has worked in the stock market, but certain factors have been distorted by the “great recession”, and covid. We keep seeing higher highs, but the stock market lows have not reached levels previously seen in market bottoms. We see “red flags” when analysts say, “this time it is different”. That is why we do not trade portfolios tactically and we only adjust portfolios through rebalancing
This website is informational only and does not constitute investment advice or a solicitation. Investments and investment strategies recommended in this blog may not be suitable for all investors. SAS Financial Advisors, LLC and its members may hold positions in the securities mentioned within this newsletter. SAS Financial Advisors, LLC is not responsible for any third-party content referenced.
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