The question that everyone wants to know is which presidential candidate will be better for your investments. Other questions on investors’ minds include how much influence will the winner have on the stock market and is there something different going on with this election cycle? Emotions are beginning to run high. This is quite common as both candidates stir up voter’s anxieties with the goal of getting people out to vote. Public trust in government is near historic lows. It is clear that there are more people fed up with Washington. The candidates have certainly generated more interest than in past years. Expectations are that Monday night’s first presidential debate is expected to shatter viewership records. The top voting issues are: a dissatisfaction with government, the economy, foreign policy, health care, terrorism, and unemployment/jobs. There will be investment implications that impact fiscal spending, currencies, global trade, taxes, and regulation.
I have been following the race closely and I am prepared to act on the potential outcomes. Even though I will make some decisions based on the election, they will not be drastic. Research has shown that party affiliation and market performance are not related. The most important variable in determining whether a presidential transition will impact markets is starting valuation. The president that had the best market return over the last 50 years was Gerald Ford (1974-77) at 18.1%. The worst was George W. Bush (2001-2009) at -2.9%. Gerald Ford was fortunate that the P/E ratio in 1975 was 8.30 and George W Bush’s administration saw P/E’s reach a high of 46.17 in 2002. Looking ahead, the iPhone 7 sales figures will be just as important than this White House race. The rally in the NASDAQ to an all-time high this week was in large part due to the new iPhone 7 launch. A quarterly earnings disappointment sales number from Apple may hit your portfolio more than either of the presidential candidates.
Government policies do eventually impact corporate profits but the Founding Fathers put enough checks and balances in place to deter aggressive agendas. Other research has shown that stock market performance has been higher when one party has controlled the White House but not both chambers of Congress. Studies suggest that investors prefer a split government.
I am prepared to make slight changes to your portfolio depending on who is elected. My hope is that neither candidate will be able to increase fiscal spending or raise taxes. I will be closely monitoring how poor policies could negatively affect interest rates and inflation rates. However, it will ultimately be business profitability, technology advancements, new drug development, and valuations that I will base my decisions upon. Trading on company fundamentals is more important than timing the market based on the next president.
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