A popular topic of conversation between my clients, colleagues, and social circles centers on the potential impact the results of the 2016 Presidential Election will have on investments. There is no disputing this Presidential Campaign has been one of the most divisive campaigns on record. Very little time seems to be spent on the solutions to the issues we face as a country compared to who is more “unfit” to serve as President of the United States for the next 4 years. In many respects, this campaign looks and feels like a political reality show…at least that is my opinion. In the end, depending on whether we have Hillary Clinton or Donald Trump as President, what can we expect for our investments and economy over the next 4 years?
We have numerous headwinds which could gather momentum or begin to lighten depending on the course we take post-election. One of the issues facing retirees is a low-interest rate environment which may force retirees into riskier investment strategies as they seek to create income to meet their financial needs. Another issue is what will the “elected” do to secure the promises made to our retiring baby boomers through Social Security and Medicare. Adding to the quagmire, with a rising national debt and more government spending, how will the tax environment change and who will carry the burden? For a retiree, higher taxes means less income or depleting investment resources more quickly weakening their financial security and income longevity. Finally, how will healthcare costs be addressed? Rising healthcare costs threaten the longevity of a retirees’ nest egg and are typically one the largest concerns plaguing our retired and retiring population.
Yet, the question remains, which party will provide the American populous the most security in terms of stock market performance and the economy. According to research done by Heather Long, in her article “Democrats vs. Republicans: Who’s better for stocks?” you will find muddy waters depending on how you want to look at the results. You can view the article here and come to your own conclusions. It seems to me the stock market results, whether good or bad, may be more about luck than about policy based on what a president inherits. So, let’s look at some stats from the above article.
The average stock market gain favors the Democrats while a Democratic president is at the helm. The stock market average is 9.7% for Democratic Presidents vs 6.7% for Republican Presidents according to Sam Stovall, chief equity strategist at S&P Capital IQ. However, Gerald Ford, a Republican President, boasts the best stock market returns during his presidency when the S&P 500 averaged 18.6% per year. Republicans shouldn’t be too comfortable with holding onto this stat because Republican presidents also have the only two negative performing stock markets since 1945 under Richard Nixon and George W. Bush (43).What about Congress? Stovall of S&P Capital IQ found, since WWII, the stock market performed best under a Republican President and a Republican Congress or split Congress.
When we look at how the economy performs, Democrat Presidents enjoy the honors of having the economy perform better when leading the country. Based on a 2014 study by Alan Blinder and Mark Watson, economic growth since WWII has been consistently higher under Democrats than Republicans. Further study found the main reasons for the difference in economic growth between the two parties had very little to do with anything the President can control or influence. Again, it seems to come down to pure dumb luck…in my opinion. Blinder and Watson found events the president can’t control, “like sharp changes in oil prices or advances in technology that boosts productivity seem more relevant in explaining the differences in economic growth between presidents.” As their study dug deeper, they found mixed results across the economic growth spectrum like unemployment and inflation rates.
I don’t know if this helped answer the question of whether we’re better off with a Democratic or Republican president or Congress. In fact, I would venture to say it didn’t. Regarding this election, it is my opinion that we have some hard years ahead of us. Whichever party has the Presidency and/or Congress, there are many tough decisions that will need to be made. It may require steps backward to eventually move forward. Ultimately, it comes down to what we each believe in and feel is the correct course for our country to take.
Regardless of the result, I think we need to be prepared for a tough go of it in the near future. I expect volatility. We have been in an 8-year “bull market” which will correct eventually. What will trigger this correction we can’t know for certain. For now, staying the course, not panicking, and having a diversified approach to your portfolio which blends guaranteed strategies, income-oriented investments, equity investments, and alternative investments balanced within your own personal risk tolerance is my best advice. If fear is driving you, sitting in cash may be prudent as long as you have a defined strategy to get invested again. You may want to consider dollar-cost averaging back into your overall strategy over the next 6-12 months if you are feeling anxious.
In closing, I would like to leave you with a chart that looks at several policy issues for this election. It provides a summary of what Democrats and Republicans are advocating. I hope you find this helpful.
Cory Davern, Executive Vice-President and Financial Advisor