“The Ballot is Stronger than the Bullet” – Abe Lincoln
Bill Clinton had just been elected president and I was concerned. I recall a conversation with a dear friend during which I argued the stock market would falter under Clinton’s presidency. I opined on the subject of how Clinton’s left leaning policies were incompatible with economic growth, and without growth we could kiss our Bush and Reagan era profits goodbye. He reminds me, just occasionally, that my prognostication proved a bit flawed. In fact, the stock market performance during the Clinton years bested the performance produced during the Reagan years. You can look it up!
I cast my first presidential vote for George McGovern in 1972. McGovern’s platform included US withdrawal from Vietnam. A notion attractive to me because I was of the age which made my required participation in that struggle a probability greater than zero! McGovern was not the last loser I voted for. McGovern was a strong proponent of income redistribution. The winner, Richard Nixon, benefited from an economy recovering just in time for the election. The S&P returned (-14.31%) in “73” and –(25.9%) in “74”. Nixon resigned on August 9, 1974. You can look it up!
Our defensive posture has proved less than optimal this past year. We would have been better throwing caution to the wind! I’m sure that notion still resonates agreeable with some and so to the question we ask ourselves daily: “Should we put idle cash to work today because we can find attractive values or should we do so because of the palpable fear that prices will continue their relentless pursuit higher?” There is a newly coined acronym for this. FOMO (Fear of Missing Out). I have included a very long term chart of the U.S Market for your edification. Draw your own conclusions:
I would mention that our economy does appear on the cusp of accelerating. Like or hate Trump’s economic agenda, tax cuts and easy monetary policy seem just the elixir the market needed for its next leg up! I must mention however, that I harbor some trepidation for the aftermath of it and when the government withdraws its stimulus. Where would markets be without the past decade of free money?
Several years back we brought on a new family as clients. Their advisor had liquidated their portfolio after the 2008-2009 meltdown and then remained persistently short the market during the first several years of Obama’s presidency. He was convinced the Obama era would lead to financial disaster. We transferred the account to Berkeley and I’ll never forget the new clients’ response to our question ‘what was the advisor thinking?” “He let his political views spoil our investment results”. Point taken!
As the 2016 election drew closer, many pundits decried the election of Donald Trump would result in financial Armageddon! “I can say with 100 percent certainty that there is a really good chance we could see a huge, huge correction” (Mark Cuban, entrepreneur). The election of Trump “would likely cause the stock market to crash and plunge the world into recession” (Simon Johnson, famed economist). And late on the night of the 2016 election, “Markets are plunging! If the question is when markets will recover, a first pass answer is never!” (Paul Krugman). Well never is a long time, Paul!
There is no doubt that economies and therefore financial markets are either victims or beneficiaries of government intervention and influence. But predicting the short term direction of either has proved illusory, particularly if one anchors their portfolio to a presidential election result. The current equity market continues to benefit from unprecedented accommodative monetary policy and a fiscal shove via tax cuts. Stock appreciation will continue until it doesn’t. However, after a 5% move to start the year, we are tasked with the searching for value. Equity markets have advanced without so much as a minor correction since the election, and that we will argue defies normal. You can look it up!