Readers react to last week’s “Biden” Digest … letting emotions get the better of us … do presidents really impact stocks? … what’s far more important than who is in the White House
If Biden wins, I’ll consider moving to the center of the earth.
To say last Monday’s Digest elicited strong reactions from some readers was an understatement.
If you missed that Digest, it looked ahead at the possibility of a Biden-win in November.
To be clear, we weren’t rooting for this outcome (or against it, for that matter).
We were merely objectively evaluating how one corner of the market might respond to a Biden-presidency in the same way that a different Digest might evaluate what sectors could do well under a Trump second term.
Yet some Digest readers were less than enthused …
- WHAT A JOKE!!!! UNSUBSCRIBE ME FROM YOUR EMAILING
- A Biden presidency would be disastrous …
- What utter tripe.
- He will bankrupt country.
- ARE YOU SERIOUS?
- IF he did win, I would sell every single stock I have Nov 4 evening. I won’t give it time for the market to crash.
Now, for a moment, let’s forget the politics of each candidate. Instead, let’s just focus on the market in general, relative to a presidential election …
When you boil it down, are they good events, bad events, or non-events for investors?
Here’s famed investor, Louis Navellier, with his quick two-cents:
The great news is that the presidential election year can kick the stock market into overdrive.
In fact, it’s one of the reasons why I expect stocks to win The Race to 40k — a friendly bet between my InvestorPlace colleague Matt McCall and me over whether bitcoin or the Dow will hit 40k first. If you missed it, you can watch a replay of the event here.
With this in mind, in today’s Digest, let’s look a little closer at presidential elections and the stock market.
It turns out, even if your candidate doesn’t win, it might not be the end of the world.
***The tendency to believe the sky is falling
The Digest-readers highlighted above are hardly alone when it comes to strong emotions and a presidential election.
The problem is strong emotions and investing rarely mix well.
While, in this case, those strong emotions relate to the prospect of a Biden presidency, four years ago there were strong emotions relating to Trump’s presidency.
You might know the name Aaron Sorkin. He’s one of the most successful scriptwriters in Hollywood, penning the movies “A Few Good Men,” “Molly’s Game,” “Moneyball,” and “The Social Network,” as well as the TV show, “West Wing,” among others.
Four years ago, when Trump won the election, Sorkin wrote on open letter (ostensibly, to his daughters) expressing his abject despair at the election outcome.
From that letter:
Well, the world changed late last night in a way I couldn’t protect us from …
I won’t sugarcoat it — this is truly horrible …
And the world took no time to react. The Dow futures dropped 700 points overnight.
Economists are predicting a deep and prolonged recession.
As we all know, the stock market immediately recovered its election-night losses and went on to climb 58% over four years.
And no such “deep and prolonged recession” materialized (pre-coronavirus).
In fact, over Trump’s first term, the unemployment rate fell to its lowest level in half-a-century before spiking under the pandemic.
Sorkin is clearly a bright man, yet he succumbed to a classic investing mistake — letting emotions cloud judgement.
***Today, many other investors are allowing emotions surrounding the upcoming presidential election to cloud their judgement
But what’s the reality?
Back to Louis:
I believe President Trump’s reelection alone could boost the Dow to 40k.
Now, before you jump to the conclusion that Louis’ comments must mean a Biden-election would be a negative for stocks, here’s what Louis wrote about that possibility:
So, what if Joe Biden wins the presidential election?
Well, Wall Street still wins!
History tells us that the stock market typically treks higher regardless of the political party in office.
Case in point: Under President Obama and President Clinton, the Dow surged 148% and 229%, respectively.
The bottom line is investors are set to make some real money over the next 12 months.
A big picture reminder of long-term investing
Below is a chart of the S&P over roughly the past 100 years.
Over this century, we’ve seen democratic presidents, republican presidents, booms, busts, and everything in between.
And through it all, the broad U.S. stock market has risen over time.
It would be one powerful candidate indeed that could derail 100+ years of stock market victories.
Is that candidate finally here with either Biden or Trump?
Before you say yes, consider that just about every presidential election comes with forecasts of economic and/or market collapse.
For instance, in 2016, Citigroup strategists said the S&P 500 could lose 3% to 5% immediately upon a Trump election. They added that a Trump win would also pose long-term risks to stocks.
Did either happen?
When Obama ran for his second term against Romney in 2012, two months before the election, nearly 50% of Bloomberg survey respondents said an Obama win would be a negative for U.S. financial markets.
It turns out, the S&P 500 rose nearly 50% in that term, bringing Obama’s eight-year return to 112%.
If anything, the numbers suggest that the direction of the stock market determines the presidency, rather than the presidency determining the direction of the stock market.
From Schwab:
When the S&P 500 has risen in the three months before an election, the incumbent party generally has gone on to win the White House; when it has fallen, the incumbent party has generally lost.
Since 1928, this trend has been broken just three times — an 87% success rate — and it hasn’t missed since 1980.
***The reality is your wealth will be impacted not so much by who is voted in, but by how you respond to who is voted in
That’s because the market doesn’t rise and fall in unison as some gigantic monolith. It’s comprised of thousands of different stocks with very different prospects.
To illustrate, look at the aftermath of the dot-com bust, all the way through the aftermath of the great financial crisis (something far more destructive than any presidential election).
As you can see below, from January 1, 2000 through February 1, 2013, the S&P went nowhere.
It literally returned 3%.
Meanwhile, Apple returned 1681% (after climbing more than 2600%).
There are plenty of examples like this. And that points toward an important takeaway …
The issue isn’t who takes the presidency, or even what the broad stock market does … it’s “what’s behind your specific stock selection?”
What’s driving your portfolio?
Take Louis …
He bases his stock recommendations on cold, impartial numbers that are relative to the specific stock he’s analyzing. Specifically, he looks at eight key fundamental factors:
- sales growth
- operating margin growth
- earnings growth
- earnings momentum
- earnings surprises
- analyst earnings revisions
- cash flow
- return on equity
This numbers-approach has helped Louis produce decades of triple-digit winners for his private clients and subscribers — regardless of who was in the White House, and regardless of whether the broad market was up or down.
If Louis ends up losing his “Race to 40K” bet with Matt, my money is still on Louis’ picks making his subscribers big-returns regardless.
As we wrap up, a fear of “the other person” getting into office is totally normal. But a long-term, objective look at the stock market suggests this fear isn’t necessary as long as you’re still investing in strength.
Don’t let shorter-term political anxieties derail you from longer-term investment gains.
Have a good evening,
Jeff Remsburg
