Don’t let the President or political party preference
impact your investment strategy.
We believe it’s our duty to remain objective and unbiased when planning and delivering advice. Sure, we all have our own political beliefs and opinions, but when it comes to the investment world and political outcomes, we leave our biases at home. We prefer to analyze the facts.
It’s not uncommon for us to chat with a fervent Republican client in the morning, followed by an afternoon meeting with a loyal Democrat. Regardless of where their political preference lies, both conversations tend to evolve to the following question:
“If So-and-So is elected President, what should we do? Should I get out?”
Can you guess why the above paragraphs are italicized? They are pulled directly from a 2020 newsletter, the last presidential election. I hate to reuse old content, but sometimes you say the words perfectly the first time you write them. It reminds me of a quote from the great financial writer Jason Zweig: “I once defined my job as saying the exact same thing between 50 and 100 times a year in such a way that neither my editors nor my readers will know I’m repeating myself.”
So, here I am repeating myself, but for a great reason. Political preference is no basis for investing, so leave it out of your investments. Let’s look at a couple of charts that illustrate what I mean.
CHART ONE: Sources: Haver, Invesco, 1/31/24. Note: President Biden’s stock market performance data is from 1/20/21-1/31/24.
Chart 1 shows neither party can claim superior economic or stock market performance. The stock market has posted positive returns across most administrations, with the rare exception of presidents who ended in deep recessions. The most interesting thing to me is that GDP grew under every president, and it seems like the lower the GDP growth, the better the stock market performance.
Let’s also look at the returns of the last two presidents. From Inauguration Day until the end of May of their fourth year, President Trump had an S&P 500 total return of 43.34%, while President Biden had a 164.6% total return. This aligns with historical numbers, as stocks have done better with a Democratic president than with a Republican in power.
CHART TWO: Sources: Carson Investment Research, FactSet (1951-2023)
We take these with a grain of salt, as with many numbers like this. Referring to Chart 1, only two Republican presidents finished with negative market performance, and that was due to their tenures ending in economic recessions. In fact, the numbers show that the President seems to matter less than the makeup of Congress.
CHART THREE: Sources: Carson Investment Research, FactSet (1951-2023)
As Ryan Detrick, Chief Market Strategist of Carson Wealth, put it earlier this year: “A split Congress has been much better for investors, as stocks have gained the past 13 times the US had a divided Congress. Maybe the best Washington is one that can’t get anything done? Or maybe it’s that what does get done requires compromise and common cause and is not just political overspending to reward constituents. Those checks and balances the founders put in place might be even more important than we realized.”
Put the President and Congress together, and investors would have been better off being “bipartisan” (fully invested) rather than “partisan.”
CHART FOUR: Sources: Haver, Invesco, 12/31/23.
Chart 4 shows the possible outcomes when using politics as an investment strategy. It shows the difference between staying fully invested versus only investing when Republicans or Democrats occupy the White House and control both houses of the Senate. You can’t time the market, and it rings especially true if you’re trying to add another layer of politics to your timing. Staying invested regardless of political currents is the best advice we can offer.
We might sound like a broken record, and even with the data to back us up, clients still push back with, “Yeah, but…” One concern is how the prospective policies of the political party in office will affect market returns and various sectors. Chart 5 exemplifies how a politician’s rhetoric doesn’t always match the outcome. When President Trump won in 2016, people were “certain” that oil and gas companies would thrive while clean energy companies would falter. And after President Biden was elected in 2020, the exact opposite was predicted. What actually happened?
CHART FIVE: Sources: Haver, Invesco, 1/31/24.
We will explore the two candidates' policies more in our next Newsletter. However, let this serve as a reminder that predicting what policy could mean for the market is difficult, just like most forecasting.
Ultimately, KWB Wealth is here to guide you and help you make prudent decisions so your plans can come to fruition regardless of November’s election. If you have any questions or your financial situation has changed (beneficiaries, income needs, investment objectives, time horizon, risk tolerance, etc.), don't hesitate to contact our office. Stay safe.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing.
All performance referenced is historical and there is no guarantee of future results. All indices are unmanaged and cannot be invested into directly.
The Standard & Poor’s 500 Index is a capitalization weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.
Investing involves risk including loss of principal.
No strategy assures success or protects against loss. The economic forecasts set forth in this newsletter may not develop as predicted and there can be no guarantee that strategies promoted will be successful.
