By John A. Dougherty
Phone calls are coming in from investment clients on both sides of the aisle, nervous about the upcoming prez election. The most frequent question: John, should we sell our portfolio and keep assets in cash until after November 3rd?
Looking at historic data, there are two components that tell us that trying to time, that is, anticipate, the market ups and downs around politics is a bad strategy. Timing the market is usually always a bad idea unless you are buying bargains after the market has already dropped.
First, a recent study from Fidelity Investments written by Jurrien Timmer (a great name for talking about timing the market) shows that four-year market performances during a democrat vs. republican president are remarkably close: Average Repub prez 49% growth; Dem prez 46% growth. Timmer went back all the way to the 1800s.
Second, when you attempt to time the market by deciding to sell-out during temporary periods, you may miss big positive moves in the market. Another study showed that if you stayed invested every day between years 2000 and 2019 (5,035 trading days), your average annual return for the 20 years would have been 6.1%.
However, if you happen to miss just 20 of the best market days out of those 5,035 total, your average annual return would be only 0.1% per year—for all 20 years. Don’t be the poor sap who always wines that, “Yeah, I tried the stock market, but it went down, so I sold out, and never ended up making any money. It was a rip-off, man.”
I distinctly remember back in 2016 when Nobel laureate economist Paul Krugman warned us about Trump’s pending election: “Now comes the mother of all adverse effects . . . So, we are very probably looking at a global recession, with no end in sight.”
On June 6th, 2016, Larry Summers, another economist, former secretary of the treasury, and former Harvard president wrote about Trump: “If he is elected, I would expect a protracted recession to begin within 18 months. The damage would be felt far beyond the United States.” The president of Harvard must be pretty smart–try even being accepted as a student let alone being the university president. But he got this one 100% wrong.
There are similar dire thoughts about a Biden administration this time. But the reality is that no president wants a lousy economy during their term. As Trump has done, it is likely that Biden will continue spending stimulus money in the fashion of a drunken sailor (sorry, Navy readers). And who knows, if Biden gets into office, those states reluctant to re-open from the virus may have more confidence sooner to do more things to stimulate their economies and increase growth.
So, with regard to the economy, does it matter who becomes president? A well-used maxim in presidential economics: Markets move presidents more than presidents move markets.
If you can’t decide about the election, consider a write-in vote for Betty White – nobody’s smarter and she’s in the same age bracket as those other two guys.
John A. Dougherty
Investment Advisor, Spring Hill
and author of Your Survival Guide for Financial Success, What You Absolutely Positively Need to Know