2020 US Election - 10 truths no matter who wins
Coronavirus has upended the traditional cadence of an American presidential election year. While the election will have a momentous impact on the country, one area where we caution investors from drawing too many links is the world of investing.
Politics and investing have always been spoken about in the same breath. Market commentators, and even presidents themselves, have linked the performance of the stock market as a sort of “barometer” of the effectiveness of a president’s policies.
The data don’t support this link, and investors would be wise to think critically before making an investment decision based on who’s occupying the White House. Over the past 120 years, the long-term performance of the market has shown almost no correlation with government policies.
Instead, the key drivers of stock market performance have been earnings and economic growth. Much of our collective memory about the performance of the economy under various past presidents stems from historical narratives, not hard data.
Other factors – like the decisions made by the US Federal Reserve – have a much greater impact on market sentiment than any sound bite we hear from politicians. Several years ago, we coined a phrase that bears repeating: “Hating the government is not an investment strategy.”
This election season will be no different from the prior ones, and investors should brace themselves for vitriol on both sides of the political spectrum.
Rest assured, investors have prospered in markets even during difficult political times. The average return of the S&P 500 Index is approximately 11% since the end of World War II, even though we’ve had impeachments, additional wars and ambitious new spending. While we can’t say with any certainty who will win in November 2020, we can say for sure that staying the course has always made the most sense for investors. Even in the middle of a recessionary environment related to the impact of COVID-19, investors should focus on staying buckled in and look past the headlines to the underlying story that really matters. What Lincoln said in the nineteenth century remains wise advice for 2020: Stand firm.
10 truths no matter who wins:
1. Markets have performed well under both parties.
2. Investors are better off staying fully invested.
3. We do not radically re-engineer the US economy.
4. The historical narrative is not as you remember it.
5. Signature legislative accomplishments are infrequent, and the impact is not always as expected.
6. Predictions tend to be wrong.
7. Monetary policy matters more.
8. It’s okay if you don’t like the President. The market doesn’t care.
9. No, this is not the most vitriolic election.
10. Don’t confuse partisan politics with market analysis and keep your eye on one indicator.
Source: Invesco; Brian Levitt, Global Market Strategist, North America
Index Definitions:
Consumer Price Index (CPI) program produces monthly data on changes in the prices paid by urban consumers for a representative basket of goods and services.
The Dow Jones Industrial Average is a price-weighted index of the 30 largest, most widely held stocks traded on the New York Stock Exchange.
The S&P 500 Index is a market-capitalization-weighted index of the 500 largest domestic US stocks.
The Russell 1000 Value is an unmanaged index considered representative of large-cap value stocks. The Russell 1000 Value Index is a trademark/service mark of the Frank Russell Co. Russell® is a trademark of the Frank Russell Co.
The Russell 1000 Growth is an unmanaged index considered representative of large-cap growth stocks. The Russell 1000 Growth Index is a trademark/service mark of the Frank Russell Co. Russell® is a trademark of the Frank Russell Co.
The Misery Index is an economic indicator calculated by adding the current unemployment rate and the inflation rate.
Indexes are unmanaged and cannot be purchased directly by investors. Index performance is shown for illustrative purposes only and does not predict or depict the performance of any investment. Past performance does not guarantee future results.
Disclosures:
These views represent the opinions of the authors and are not intended as investment advice or as a prediction of the performance of any investment. These views are as of the open of business on December 31, 2019, and are subject to change on the basis of subsequent developments. Forward-looking statements are not guarantees of future results. They involve risks, uncertainties and assumptions, there can be no assurance that actual results will not differ materially from expectations.
Equities are subject to market risk and volatility; they may gain or lose value. Fixed income investing entails credit and interest rate risks. Bonds are exposed to credit and interest rate risk. When interest rates rise, bond prices generally fall, and a fund’s share prices can fall. Foreign investments may be volatile and involve additional expenses and special risks, including currency fluctuations, foreign taxes and geopolitical risks. Emerging and developing markets may be especially volatile. The mention of specific countries, currencies, companies, or sectors does not constitute a recommendation by any particular fund or by Invesco.
This material is provided for general and educational purposes only, is not intended to provide legal or tax advice, and is not for use to avoid penalties that may be imposed under US federal tax laws. Invesco is not undertaking to provide impartial investment advice or to provide advice in a fiduciary capacity. Contact your attorney or other advisor regarding your specific legal, investment or tax situation.
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