Happy Fall from Life Planning Partners.

We continue to determine best practices with the new normal of the pandemic. Two of us work in the office each day, while the rest of us work remotely. This will continue until the foreseeable future. We are happy to have in-person meetings with those who would like to come in – we wear masks and ask all visitors do the same, at least while the COVID-19 case numbers stay elevated.

Thank you to everyone who returned our surveys – your comments were very helpful. We strive to improve and had some good suggestions – stay tuned.

We know the election is on everyone’s mind – hang in there! And on that note, Tim has provided us some great food for thought on the elections and the market.

Warm regards,
The LPP Crew
Market Update

In nine months, the U.S. stock market (S&P 500 Index) has plunged 35%, rebounded 60%, and followed that up with another 10% drop. A slight rally at the end of September leaves the market with a gain of 5.5% year-to-date.

Bonds experienced a sharp drop during the madness of March, but quickly recovered and are showing modest gains for the year. Foreign stocks plunged along with the U.S., but emerging markets have since clawed their way back to even while developed markets remain down slightly.

Whew… can we call it a year already? 😯

Unfortunately, 2020 has more in store for us, including an upcoming election.

What does that mean for investments, particularly the stock market?

Does the presidential election matter for stocks?

There are plenty of factors to consider in a presidential election, but are investments one of them? Should concerns over market performance enter into the equation?

Probably not.

Conventional wisdom says that Republicans are more business friendly, in which case a Republican president would seemingly benefit stocks. Yet, that popular belief isn’t supported by the data.

First, it’s worth noting that stocks are rising more often than not. Statistically, stocks rise in about 75% of one-year periods. The odds of positive returns increase for longer timeframes, with around 88% of 5-year periods showing gains. So, it shouldn’t be surprising that most four- or eight-year timeframes for presidential administrations would have positive stock returns, regardless of political party. 
Since Truman, stocks have lost value under just two presidents – Nixon and Bush II. Every other administration saw double-digit annualized returns. 
Prior to Nixon, we have to go back to the Hoover years (and the start of the Great Depression) for an administration with negative stock market results. The market has actually risen under every Democratic president since 1933.

“Average” stock market returns have also been higher under Democratic presidents, but that’s not very informative. Since 1933 there have been 7 presidents from each party, making for a very small sample size from a statistical standpoint. And averages can be misleading. Putting your head in the oven and your feet in an ice bucket can lead to a comfortable temperature “on average.”

Perhaps more telling is the fact that 11 of the past 14 presidents experienced a 20% or larger “bear market” decline under their watch. If we nudge that arbitrary cutoff to a 19% decline, the count is 13 of 14 presidents. (The downside winner? None other than Jimmy Carter, with a mere 17% drawdown.) Clearly neither party can ensure market stability and safeguard against painful market drops.

Presidents may have a limited effect at the margin, as investor sentiment has some bearing on markets. But the Federal Reserve has significantly more impact through monetary policy, and factors like interest rates, unemployment, market valuations and the overall economic cycle all have greater influence than who is sitting in the Oval Office.

While most individuals have strong personal preferences, “Mr. Market” doesn’t seem to care much whether a president is Republican or Democrat.

“Bull markets and bear markets come and go, and it’s more to do with business cycles than presidents.” – Jeremy Siegel, Professor of Finance, Wharton Business School
Life Planning Partners, Inc.
904.448.5158