Politics & Your Investments

What factors influence market prices? There are hundreds of factors affecting market prices and two of them are the actions of Congress and the President. Among the other factors are: inflation in the U.S. and around the world, global politics, war & rumors of war / saber rattling, oil prices, supply of oil and gas, employment, domestic civil unrest, wage levels, availability & cost of childcare, interest rates, home construction, Central Bank policy in the U.S. and around the world, the value of the dollar relative to other global currencies, and on and on and on. Does it really matter who controls Congress and the Oval Office?

As much as all of us want to simplify explaining why the stock market does what it does, it is a gross error to operate our investments in line with our politics. I realize that some readers may think I’m crazy or at the very least, wrong. Please read the facts I present to you.

Allow me one side note before I get on to the topic. John Archbold, CFA from Clark Capital commented at a conference I attended last week: “market prices reflect transactions, not information.” He then sited Home Depot as an example. The stock price is down 32% year-to-date (transactions). All the while, the company’s sales are up 14.42% from the previous year, profits are up 11.5% and the company increased their dividend by 15.2% (information). (1) But the share price is down 32% (transactions). Why? Sometimes the price of a stock (transactions) does not align with the information. There are many, many other similar companies today where the stock price does not reflect the information.

During the years from 1987 through 2021, the S&P 500 Index was up 29 times and down 6. So, one of every five years is a loser. Which party was in control of Congress most during the 29 winning years? The Republicans had eleven up years, Democrats had nine up years, while a mixed Congress that had one party controlling the House and the other with the majority in the Senate had seven up years.

In the years from 1926 through 2021 in which twenty-four mid-term elections took place, the S&P 500 Index lost money in nine of those years, and had fifteen positive years. The best return was in 1954 when the market was up 52.6% and the worst in 1974 when it lost 26.5% with an average return of 6.5%. Remember, this is the year that we had a mid-term election. But what about the year following the mid-term?

We have had 24 mid-term elections from 1926 through 2021. In two of those years (1931 and 1939) following a mid-term election, the S&P 500 index was down. In the year following the other 22 mid-term elections, the market was up. Yes, 22 times out of 24 elections, the S&P 500 was up in the year following the elections. The average return was 18.5% in the year following a mid-term election. (2,3)

Let me be clear. I am not making a prediction. I think you know me better than to be that foolish. However, sellers appear to have been very active this year. Mr. Archbold commented that “the market seems to be deeply oversold relative to company profits.” In English, this means the market seems to be down more than it should be based upon the facts.

What about Presidents you might ask. We have had fourteen presidents from 1933 through 2020, seven from each party. With two exceptions, the S&P 500 was higher at the end of their term than when they took office. One exception was Nixon and the other was George H. W. Bush and he just had the bad luck of being president at the start of the Gulf War II and ending with the Great Recession of 2008. (4, 5)

Does this mean politics does not matter. Politics does matter….but not nearly as much as some people like to think. Neither party is the savior of the free world or the evil empire that will destroy our economy.

Our job is to be the voice of calm, planning and sticking to the route selected to get to the destination. Yes, markets are down a bunch. Last week, last month and last quarter were terrible. This is not shaping up to be a great year for our investments. But Winter becomes Spring and then rolls forward to Summer and Fall and the cycle starts over.

Stay invested. Success is all about time in the market…. not trying to time the market. Call us with questions or comments.

Wollman Wealth Designs, Inc is a financial planning and investment advisory firm in Escondido, CA partnering with families, friends and clients in San Diego County and around the country. Please visit our website, call the office or send us an email with your comments or questions.

1.https://ir.homedepot.com/stock-information/stock-quote-and-chart

2.https://www.schwab.com/learn/story/will-midterms-affect-market-performance

3.https://www.forbes.com/sites/sergeiklebnikov/2022/01/19/we-looked-at-how-the-stock-market-performs-during-midterm-election-yearsheres-how-2022-may-be-worse/?sh=547e95012562

4.https://www.macrotrends.net/2482/sp500-performance-by-president

5.https://www.businessinsider.com/personal-finance/how-republican-vs-democratic-presidents-affect-investment-value-2020-10

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