Over the next 12 – 14 months stock markets will act as weighing machines between the positive and negative forces that exist in the world. Ultimately, the direction and magnitude of movement for stock markets will be determined by the balancing of these positive and negative forces.

What we think:

Widespread vaccination and the subsequent “reopening” of economies should allow economic growth to surge in the second half of 2021. 

The combination of positive sentiment and high valuations in US stocks will hold back returns, because much of the good news is already baked into current prices.

More predictable trade policy from the US will lead to stronger international growth and a weakening of the US dollar in relative terms.

With democrats holding a small majority control of Congress it is likely we see more stimulative fiscal policy. This furthers the case for a weakening dollar and international stocks.

It is likely that we see a steepening of the yield curve over the next year. The Fed seems poised to maintain very low short-term rates until “maximum employment” is reached. A widening spread between short-term & long-term rates would be a positive for financial stocks.

Earnings should rebound in 2021. However, US stocks will likely be constrained by valuations that are historically high. This bodes well for international and emerging market stocks which have much lower valuations relative to US stocks.

What does it all mean:

While I believe stocks are in the early stage of the next great bull market cycle. High valuations and overly positive sentiment create an environment perfect for market corrections and a temporarily sideways market. Earnings need to catch up with prices.

Investors should use corrections as an opportunity to invest idle cash, and/or rebalance their portfolio heavier to stocks.

Investors should overweight to international & emerging market stocks relative US, because of attractive relative valuations, and a weakening dollar. Investors should overweight cyclical, and small cap stocks which will see bigger bumps in the early part of the recovery. 

With the presidential election still too close to call, we wait. 

While we wait, let’s think about what we do know, and what we expect given the current information. 

What we know: 

ONE: Policy has a greater impact on markets and economies than politics does. 

TWO: Republicans will probably maintain control of the Senate. This means there will most likely be divided government no mattter who ultimately wins the presidency. 

What we expect:

An extrememly narrow Biden electoral win. 

However in either scenario, a Trump or Biden win, there will be divided government. 

It is very unlikely to see any major legislation enacted over the next two years. 

Obamacare and the Tax Cuts & Jobs Act were both passed when one party held control of Congress and the Presidency. 

No other major legislation has been passed in the last 12 years and that is unlikely to change in the next two years. 

Both candidates will try to pass fiscal stimulus. 

Both candidates will continue to increase the national deficit and debt. This could prove inflationary in the longer-term. 

Both candidates might have to deal with the fallout of Obamacare should the Supreme Court deem it unconstitutional. 

The President has the most power dealing with foreign policy, and that is where we will see the biggest changes with a Biden victory. 

Sincerely,

Wyatt Swartz

Financial Adviser, RIA
W. Swartz & Co.
(636) 667-5209 | www.wswartz.com

11/4/2020

Presidential election years bring a lot of uncertainty and stress. And that’s not just for the candidates who are running.

In fact, during the 2016 election cycle, one study found that at least 50% of Americans were more stressed out because of the election. And this was true across all party lines.¹

So, why does that matter?

Because stressing about election uncertainty can affect your mindset and trigger emotional investing decisions.²

The good news is that you can avoid the frenzy around the upcoming election—and the stress and poor financial choices that may come with it—if you know the facts about the markets during presidential election years. Knowing these facts can help you keep a level head no matter what the outcome of the next election is.

• FACT ONE: Past performance does not predict future results. That is, what happened in markets the last time a party was in the White House may not happen in the future.
• FACT TWO: Technology innovations, interest rates, and business profitability may have a greater influence on the market and the U.S. economy than presidential election results.
• FACT THREE: The S&P 500 has been positive in 16 out of 23 presidential election years since 1928.
• FACT FOUR: Since 1952, the Dow has increased an average of 10.1% in election years with a sitting president running for reelection.
• FACT FIVE: When it comes to the stock market and investing, it really doesn’t matter which party wins. Normal variations in market returns eclipse any minor differences from president to president.
• FACT SIX: Long-term investment success depends more on the strength of the U.S. economy than the party in the White House.
• FACT SEVEN: The S&P 500 has an 86.4% success rate at predicting a White House win. Historically, if markets were down in the 3 months leading up the election, the incumbent often lost.

It’s no secret that presidential election years are uncertain times—and that investors and the stock market like certainty.

It’s also no secret that the stock market is influenced by several factors—and that a presidential election may not even be the most significant one.³

Of course, it can be easy to get caught up in campaigns, politics, and elections. And they do matter. Just not as much as you may think when it comes to investing.

Unfortunately, too many people let ideas about who could win office—and what they’ll do when they get there—run wild. And that can mean more stress and anxiety that overshadow sound investment choices and strategies.

In the end, stressing about the “what ifs” of the election just isn’t productive. As a financial adviser, I’ve seen how elections can fuel investors’ stress and lead them astray when it comes to their financial choices and their long-term goals. I also know how helpful it can be to have a sounding board when emotions run high. That’s why I’m here.

So, while the excitement of the election can be great inspiration to vote, don’t let it drive your investment choices. And, remember, whatever happens on November 3, 2020, life will go on. Instead of stressing about the “what ifs,” give me a call. I’m here to support you, and I can help you create a personal financial strategy for the election year and beyond.

Wyatt Swartz | Financial Adviser, RIA