FINANCIAL MARKET UPDATE 9.1.2020

AUTHOR: JOSH JENKINS, CFA

STORY OF THE WEEK

THE ELECTION AND YOUR PORTFOLIO

With the election just months away, many investors are contemplating how the outcome might impact their investments. For many people, politics can elicit strong emotions. Passion, properly channeled, can lead to major achievements in many aspects of life. When it comes to investing, however, emotion often leads to poor choices and can be detrimental to investment performance. 

Whether or not one’s preferred party is in office can dramatically impact their overall outlook. This is especially true in the realm of investing, and it will lead a subset of investors to liquidate their portfolio in anticipation of their candidate(s) losing. The fact that this pattern repeats over each election cycle would suggest this behavior has been rewarded historically. However, the data suggests otherwise. The chart below illustrates the market performance during the various presidential terms going back to the 1920s. There is no apparent relationship between who controls the White House and how the market performs. Each party has seen negative returns, low returns, and high returns. 

While the President has the power to impact the financial market and the real economy, it is just one of many variables that exerts influence. Global trade, interest rates, inflation, the business cycle, economic conditions outside the U.S., market valuations, war, and pandemics can all significantly influence the trajectory of economic growth and asset prices.

The market hates uncertainty, and a potential shift to policies considered less favorable for businesses would likely generate volatility. Similar transitions have occurred many times throughout history. While there has been heartburn as change was initially digested, the market has hardly skipped a beat. Entrepreneurship and innovation have powered the U.S. market forward and will continue to do so. As the chart below illustrates, long-term investors have been rewarded for staying invested regardless of which party has held power. 

Over the next few months, the election is going to dominate the headlines. There will be an endless supply of people trying to predict the future and how to position for it. This is all noise. The best course of action is for investors to separate their politics from their portfolio and focus on their long-term plan. Don’t bet on a Republican win to achieve your financial goals, and don’t bet on the Democrats either. Bet on the millions of small business owners (including many of our readers) and corporate leaders to adapt to any environment and continue to grow. Your portfolio is invested in them, not a political party.

Nearly a century of market history suggests the market will likely be higher in November 2024 than it is today, regardless of who wins the election.

WEEK IN REVIEW

  • August was a strong month for the S&P 500. The index finished up 7.2%, the largest monthly gain since April, and the best August return since 1986. August has historically delivered the lowest return of any month on average.
  • In a speech last week, Fed Chair Jerome Powell laid the foundation for a new approach to achieving its dual mandate of maximum employment and stable inflation. The new approach will focus on targeting 2% inflation on average. Under this framework, periods of sub-2% inflation, similar to what we have been experiencing, would allow the Fed to subsequently tolerate a modest inflation overshoot in its pursuit of full employment.  
  • Economic data published this morning by the Institute of Supply Management (ISM) showed factory output increased in August at the fastest rate since November of 2018. The data showed that manufacturing firms continued to cut employment, however. Other economic data to look for this week include jobless claims and an update on the services sector on Thursday, and the jobs report on Friday.

HOT READS

Markets

  • Individual-Investor Boom Reshapes U.S. Stock Market (WSJ)
  • When the Magic Happens (Morgan Housel)
  • Tesla To Sell Up to $5 Billion in Stock Amid Its Incredible Rally (CNBC)

Investing

  • Warren Buffett and the $300,000 haircut (Zweig)
  • Warren Buffet, at 90, Still Has an Eye for a Bargain (WSJ)

Other

ECONOMIC CALENDAR

Source: MarketWatch

MARKETS AT A GLANCE

Source: Morningstar Direct.

Source: Morningstar Direct.

Source: Treasury.gov

Source: Treasury.gov

Source: FRED Database & ICE Benchmark Administration Limited (IBA)

Source: FRED Database & ICE Benchmark Administration Limited (IBA)

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ABOUT THE AUTHOR

402.763.2967

jjenkins@lutz.us

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JOSH JENKINS, CFA + SENIOR PORTFOLIO MANAGER & HEAD OF RESEARCH

Josh Jenkins is a Senior Portfolio Manager & Head of Research at Lutz Financial with over nine years of investment experience. He is responsible for assisting clients in the construction, selection, and risk assessment of their investment portfolios. In addition, Josh will provide on-going research and trade support.

AREAS OF FOCUS
  • Asset Allocation & Portfolio Management
  • Investment & Market Research
  • Trading
AFFILIATIONS AND CREDENTIALS
  • Chartered Financial Analyst (CFA)
  • Chartered Financial Analyst Institute, Member
  • Chartered Financial Analyst Society of Nebraska, Member
EDUCATIONAL BACKGROUND
  • BSBA, University of Nebraska, Lincoln, NE

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