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Love Your Enemies: September 2020 Market Commentary

By: Mark Paccione, CFA, CFP®, BFA™
4 Minute Read

As the election nears, many pundits will speculate on who will win the presidency or what party will win which chamber of Congress. They will also predict the resulting policy change, and then further extrapolate the impact on the stock market. Please don’t play this game. Avoid the temptation to allow political views to get in the way of your long-term financial plan. Save yourself the stress.

History demonstrates that stock markets do well under both parties. S&P 500 Index annual return averages are over 14% under a unified Republican government, unified Democrat governments, and divided government with Democrat president. The lowest annual returns, divided government with Republican president, are still good with a positive 7% annual return average.

Data from 1926 through 2019. Unified government means that the Presidency, the House of Representatives, and the Senate are all controlled by a single party. Divided government means that at least one houses of Congress or the Presidency is controlled by the other party. Indexes are not available for direct investment. For educational purposes only. Source.

Real-World Examples

Recent history provides examples of futile attempts to make investment decisions based on election predictions and political beliefs. The consensus expected Hillary Clinton to win in 2016 and believed a Trump win would cause the stock market to plummet, which it did on election night.[1] However, that lasted for less than 24 hours as the S&P 500 Index was positive the day after the election.

Following the election, I spoke to several Democrat-leaning clients and persuaded them to not raise cash in their portfolios despite their fears of what would transpire during the Trump Presidency. Fortunately, the conversations were fruitful as the S&P is up 64.6% percent on a cumulative basis (14.3% annualized) since the 2016 U.S. presidential election on November 8, 2016 through July 31, 2020.[2]

While there may be some Republicans who think this is a Democrat issue (and vice versa), let’s also take a look back to 2008 following the election of President Obama. For much of Obama‘s presidency, many Republican-leaning clients I spoke to were worried about Obama’s “socialist” policies, such as universal healthcare and higher taxes—so much so that tax hikes that went into effect January 1, 2013, were dubbed, “Taxmageddon.”[3]

Many of these individuals also feared these policies would lead to hyperinflation and tank the economy and the stock market. None of these fears came to fruition. In 2013, the year tax rates shot up, the S&P 500 was up 32.4%. Overall, the S&P was up 234.5% cumulative (16.3% annualized) over Obama’s presidency.[4]  In short, his presidency did not lead to economic disaster.

Clearly, the stock market has done well under both Republican presidencies and Democrat presidencies, Republican-led congresses and Democrat-led congresses. With that information in mind, we urge investors to not let political views get in the way of long-term investment plans and avoid altering portfolios based on what they believe or fear the outcome of the election will be. Even if you knew the results of the upcoming election, there is significant evidence indicating that a politically charged stock market prediction would be incorrect.

There will be long-term investment implications that result from the election; however, they will not be known the day after the election and may not be known until well after the inauguration. We will have time to adjust portfolios accordingly. The only thing that is certain is uncertainty.

Continue to Assess Goals and Define Financial Strategies

Let’s talk about what we can do to help you and your portfolio.  First, make sure your investment portfolio is aligned with your long-term financial plan and your financial plan is aligned with your long-term life goals. Carefully assessing every aspect of your financial well-being, including strategies related to tax planning, estate planning, insurance analysis, and education funding, coupled with the appropriate asset allocation mix produces better outcomes. If you’re not certain that everything is in sync, please reach out to a member of the Curi Capital team at 984-202-2800.

Finally, I’d like to take this opportunity to reflect on what a privilege it is to live in a country with more than one political party and free elections. Regardless of your political leaning, we’re all Americans, and we’re permitted to have different views and ideas. If you’re interested in having more constructive political conversations, I highly recommend reading “Love Your Enemies” by Arthur Brooks. It’s a phenomenal read and a great antidote for the political divisiveness that currently plagues our country. For those too busy to read it, I’ll give away the main message: “Go find someone with whom you disagree; listen thoughtfully, and treat him or her with respect and love.”[5]

Please note: This material should not be considered a recommendation to buy or sell securities or a guarantee of future results. Curi Capital is a registered investment advisor. Registration does not imply a certain level of skill or training. More information about Curi Capital can be found in its Form ADV Part 2, which is available upon request. 

Past performance is not a guarantee of future results. All investment strategies have the potential for profit or loss; changes in investment strategies, contributions, or withdrawals may materially alter the performance and results of a portfolio. Different types of investments involve varying degrees of risk, and there can be no assurance that any specific investment will be suitable or profitable for a client’s investment portfolio.

[1] https://www.cnbc.com/2016/11/02/this-is-what-could-happen-to-the-stock-market-if-donald-trump-wins.html

[2] Source: Bloomberg

[3] https://www.atr.org/taxmageddon-hit-americans-six-months-today-a7005

[4] Source: Bloomberg

[5] https://www.amazon.com/Love-Your-Enemies-America-Contempt/dp/1982608803

Mark Paccione, CFA, CFP®, BFA™

Mark Paccione is Curi Wealth Management, LLC’s, Chief Investment Officer, based in Raleigh, NC.

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