Hello everyone, my name is Matt Stadelman and I’m a partner at Navalign and I’m also an Accredited Investment Fiduciary. Today I’m here to talk with you a little bit about the presidential election this year.
We asked you, our clients, which topics you’d like to hear about in this presentation. One frequently asked for topic, which tends to be highly stressful for many actually, and it happens every 4 years, well it’s the presidential election.
In Chris’s market report he used historical data which exercised our right brain. This is the analytical and methodical side of investing.
It’s my opportunity to speak about our left-brain activity. The emotional and subjective side of investing.
This year, more than ever, there is voter and investor anxiety over the outcome of the upcoming election. I have a few charts and graphs to share with you. However, unlike the data used for the market report, we are analyzing a much smaller data set.
For the most part, the data that we’ll be using dates back to 1932, which only represents 22 presidential elections. It’s fun information to see, but it is hardly enough to draw any solid conclusions.
This first chart shows sentiment about the economy relative to political party affiliation. Republicans in Red, Democrats in Blue, and total voters in grey. This chart starts in the year 2000 which had George W. Bush as president, just after the tech bubble with 9-11 shortly thereafter, then Obama, then and then Trump.
Surprise, surprise, when a republican is in the oval office, of course republicans are more confident and vice versa when a Democrat is in office. What I find interesting here is the shared lack of confidence in the economy after the great recession in 2008 and how attitudes reversed so quickly and dramatically after the 2016 election.
I’m speculating here, but I’m wondering if this a condition of the way we consume news today. I’m not sure, but what I do see is more sources for news, some are reputable, and some are questionable, but there’s certainly a lot of opinions now these days. Maybe more opinions than actual news. This may or may not answer some of the divergence in current public perception about the economy, but it’s something to consider.
Speaking of divergence, the political parties seem to be growing more polarized than ever, especially over the last 15-20 years. There is a “winner take all” attitude that has infiltrated our political system. I think we can all appreciate our politicians having strength and conviction as they govern. But if the way they govern is in the absence of heathy political discourse and compromise, then isn’t that the true threat to our democracy, rather than which party is in control?
Speaking as a political swing voter, I feel both sides of the aisle need to do some soul searching and focus more on acting in the best interest of the people and not their political career. The word compromise has been contorted to be viewed as weakness in Washington, my hope is that perhaps true leaders, true future leaders, will see opportunity in compromising and show real strength by working together, as opposed to against one another.
Over time the balance of power changes. Every two years, majority control in the House and Senate is up for grabs. This obviously influences the legislative branch of government, which in turn can lead to new bills that affect the economy and influence the markets.
This chart shows how often control of congress changes with the black line representing market performance over time. This one is a little difficult to draw any meaningful conclusions from, but it is interesting to compare market returns to the different political scenarios and combinations.
Keep in mind certain major economic events can tilt the results one way or the other. The most striking thing about this chart, I find, is how frequently control changes hands lately compared with the past. The last 15-20 years have been politically volatile to say the least.
Speaking of volatility, it is a presidential election year and this next chart shows market performance during the presidential election primaries and for the subsequent year thereafter. Again, this is a small data set but interesting non-the-less.
Focusing on the bottom line of this graph, you can clearly see that during the primaries, shaded in blue, it is especially volatile during presidential elections. This volatility is due purely to the emotions of the upcoming election. There is nothing right brain about this! Anxiety over what might happen has a strong influence over market behavior. There are many so-called experts with their opinions about how things will shake out. It is all noise!
This next slide is a cartoon of how anxious investors can easily be influenced. This is titled just a normal day at the nations most important financial institution.
At the top it shows a broker on the phone with one of his clients. He says” I’ve got a stock here that could really excel”. A colleague overhears this saying “excel?” Someone overhears that as “Sell” Now there is a frenzy over someone saying SELL!
On the bottom of the cartoon you see someone say “This is madness! I can’t take anymore. Goodbye!” A colleague overhears this as “Good Buy?” Someone hears “Buy” and the frenzy over someone saying BUY begins.
And then in the lower right we see the first guy start the next cycle “I’ve got a stock here…” Funny but true. This emotional roller coaster can be really damaging. The truth is that investors tend to make their worst financial decisions when they are too emotional. Both fear and greed can ruin the best financial plan.
Because the next election has an incumbent up for reelection, I thought it would be interesting to show this slide. Again, small data set but this graph shows that the market does better when incumbents stay in office and vice versa. Hardly a reason to change your vote but it’s something for us to monitor and consider after the votes have been cast in November.
Remember, try to keep your emotions in check on this one. This is going to be important this year.
In Summary, remember, emotionally based investing leads to the biggest mistakes people make. Don’t make emotional investment decisions based on which candidate wins the primary or the election.
Each of us has the privilege to vote and it can be disappointing when our candidate doesn’t win. History tells us, if “the other party” wins (whichever side you’re on), life will go on.
With all the variables it is difficult to predict the impact of an election on the markets. We know there are plenty of “experts” willing to share their views. Remember it’s all noise!
In the last presidential election, the “experts” predicted a market crash if Trump won and the exact opposite happened.
These “experts” online and on TV, they don’t know your financial situation and they really don’t care about you. What they care about are clicks and ratings
You can’t control who wins, so focus on things you can control, like your job, spending, saving, and how your portfolio is allocated.
It’s best to create a thoughtful financial plan when emotions are in check and then have the courage to stick with that plan when emotions run high, and we are here to help.