Elections: People Care, Markets Don't
By: Aaron Anderson, CFP®, CFA, Managing Partner
June 27, 2024
As I write this, the two major party presidential nominees are preparing for tonight’s first of two debates during this election cycle. I am holding out hope that there will be high decorum with both on their best behavior. OK, I can’t say that with a straight face.
By the time you read this, the debate will be in the books. Since both are technically running for reelection, they likely both pointed at the positives of their own time in office while highlighting the negatives of their opponent’s time. Ignoring the personal attacks, loud sighs, and eyerolls, you likely heard a lot about how terrible things are and how each will fix them if elected.
But the governmental, economic, and social problems we’re dealing with aren’t new:
“Public debt is a public curse.” – James Madison
“[Inflation is] a gradual tax upon them.” – Benjamin Franklin
“The distemper in our nation is … certainly incurable.” – George Washington
In case you failed your US History courses, those quotes come from a few of this country’s founding fathers. The concerns we’re dealing with today are centuries old!
As humans, we all have biases. Party affiliation creates a bias in the way we view things, especially regarding the economy. This chart shows how that bias manifests itself.
For some clarification, the “0 line” represents the overall sentiment from all respondents. In some years, it could represent good, in others bad – the average of how people feel at a given time is zero. The red line singles out how Republicans feel, blue singles out how Democrats feel, and the shaded grey area is the time when a Republican was president.
You can see the instant flips when presidential power changes hands. Did the economy really become that good for one party overnight and that bad for the other? Of course not! The sentiment is due to the bias created by the lens they use to view the world.
Fortunately, the market doesn’t care who’s president and trying to invest based on that would be a fool’s errand. Would you say you should buy oil when Trump became president and buy clean energy when Biden became president? Makes sense right, but surprisingly, you’d have been wrong.
Maybe you should sell out of the market when your party loses power. After all, the other party is awful and will run the country into the ground. Again, that would have been a terrible idea!
So, what should you do with your portfolio as you watch the debates, see the campaign ads, and try not to internalize the negativity they bring? I’m reminded of a cartoon when I was a kid called Animanics that featured short, comedic vignettes like Looney Tunes. One was called Pinky and the Brain; the titular characters were lab mice that were made smarter – the Brain was obviously a genius, Pinky not so much – who tried to take over the world. Each night after they failed, Pinky would ask, “What are we going to do tomorrow night, Brain?”. Brain would always answer, “Same thing we do every night Pinky: try to take over the world”.
That’s what we should do. Not try to take over the world through maniacal and comedic means, but to be consistent with our portfolios and stick to our plan despite what our fears and biases are telling us to do around the election. While we can’t guarantee future results, I’ll leave you with one final chart that I hope drives home why we do so based on history.
Content in this material is for informational purposes only and not intended to provide specific advice for recommendations for any individual. All performance referenced is historical and is no guarantee future results. All indices are unmanaged and may not be invested into directly.
The Standard & Poor's 500 Index is a capitalization weighed 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.
The economic forecasts set forth may not develop as predicted and there can be no guarantee that strategies promoted will be successful.
Stock investing includes risks, including fluctuating prices and loss of principal.