Market Panic and Politics

Subtopic: Washington Wineries Air Date: August 21st, 2020

How much panic is driven by media? Let’s review the history of the market in and out of election years.

  1. Stocks have continued higher despite which presidential party is voted into office. If you invested $1,000 in the S&P 500, it would’ve grown to $8.96 mill. That’s through World War 2- Cold War – Vietnam – Civil Rights Protests of the 60’s – Assassinations of MLK and JFK
    1. Non election years post the highest average of gains, however election years still show an above average return
    2. Incumbent reelection usually posts better years than a new president. A 50 year old has lived through 3 change overs of parties – Carter, Clinton and Obama – in both Clinton and Obama terms the Dow rose.
    3. Market Seasonality “mommies to mummies” vs “turkey to tax” usually flip flop in election years
  2. Investors build cash in election years- Investors have raised high levels of cash or moved cash into money market funds/savings accounts during this and all election years. The combination of the coronavirus have driven those cash reserves even higher than previous years
  3. Covid rebound – S&P closed at record high of 3,386 in February of this year… but within 3 weeks was down 26%. Yesterday is logged its first record close in 6 months and the fastest recovery from a bear market in history.
    1. What’s driving this lack of panic?
    2. Majority of S&P 500 companies posted better than expected earnings
    3. Jobless claims came in under $1mill for the week (for the first time in 21 weeks) – 963,000
    4. Retail sales jumped 1.2% in July and labor productivity up 7.3% for the month
  4. All in all the main issues with this election year is the uncertainty. The market hates when predictability leaves the building.
    1. In the Gore Bush race back in 2000 it took until mid-December for the decision to be made and between November 7th of that year and December 15th, the S&P fell 8.4% with 5% of that drop coming in the two weeks following the election. Research shows that the first 4 days after that unclear Election Day carries the greatest market upset.
  5. One of the best things investors can do during recoveries and pullbacks is make sure they adhere to their disciplined investing plan, which is derived from their personal financial plan, which is built by their financial advisor.