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Four Truths No Matter Who Wins the Election

There are dozens of pundits and talking heads making claims about what happens to the stock market depending upon who wins the 2020 Presidential Election. Some claims are outrageous. Some claims are fantasy. Some claims are straight-up weird. So, what should investors make of all this? Here are four truths I believe will hold no matter who wins the election.

1. The stock markets have done well under both Democrat and Republican Presidents.

I realize some of the presidential terms have been eight years and, in the case of Presidents Ford and Trump, less than four years in length. But the point is this: stock markets have done well under both Democrat and Republican Presidents.

2. The stock market does as well or as poorly with divided government or unified government.

As you can see from the chart below covering the stretch of time between 1940 and 2008, there doesn’t appear to be a clear correlation between the makeup of congress and the average stock market return:

3. When held for the longer-term, the stock market has increased in value.

Think of all that happened during the 20th century:

  • Great Depression
    • Numerous Recessions (1960s, 1980s, 1900s, and in-between
      • Two World Wars, Vietnam, Korea, and smaller conflicts worldwide
      • Communism and the Cold War
      • Two Presidential assassinations
      • Chernobyl
      • Multitude of problems and issues – unpredictable

With all of that, do you know what the DOW did?

On January 1, 1900 the DOW Jones Industrial Average was 66.

On December 31, 1999, the DOW was 11,467!

Yes, from 66 to 11,467.

4. Predictions by Wallstreet gurus tend to be wrong.

The stock market has managed just fine during major reengineering in the economy. In 1965, President Lyndon Johnson championed the Great Society, giving us Medicare and Medicaid. Originally proposed by Truman and then by Kennedy, the idea of a government run health care system was very controversial. The American Medical Association (AMA) was vehemently opposed on the grounds that it would introduce socialism into the American medical system. The AMA opposed this stance by saying they did not want a third party standing between a doctor and patient. US Representative Wilbur Mills, who chaired the House Ways and Means committee, refused to pass the proposed bill creating Medicare out of committee. He was a fiscal conservative who saw it as damaging the economy. He was not alone in his feeling that the economy would greatly suffer if the AMA was passed.

Check out the table above again and see that the stock market did well even when Medicare and Medicaid passed. The pundits were wrong.

When Barak Obama and the Democrats passed the Affordable Care Act the prognosticators said it would be a disaster for small businesses. Because it required any business with 50 employees to provide a health care plan, the pundits said small businesses would quit hiring.

Look at that table above one last time and see the stock market returns during the Obama administration.

In summary:

Negativity sells. I am always disappointed, but not surprised, by how many people listen to the tales spun by the so-called Wallstreet gurus telling of the disasters to come. What disappoints me is that those who read or hear the forecast do not seem to remember it a year or two or three later when the disaster does not happen as predicted.

Here are two examples. Andrew Roberts of the Royal Bank of Scotland said the financial system was on the edge of a cliff and investors needed to think the unthinkable. It was going to fall off the cliff before the end of the year. Of course, that was his forecast in the summer of 2010. Michael Lombardi claimed there would be another Great Crash and he was there to help his investors avoid that plunge. But that was to happen in 2013.

It is only natural for most people to feel some fear about losing everything in a crash. That is the agenda for the gurus who peddle their forecasts of doom ahead.

American businesses tend to be resilient. Yes, companies change and industries change because of technology, demographics, and lifestyle changes. But new companies rise to replace the old ones. The new companies seem to grow faster and stronger than the ones they replace or the markets they open. That is the story of American business. It is the story of entrepreneurs and the many small businesses which adapt to the changes in technology and lifestyles and demographics. As long as that continues I believe the markets are going to continue to thrive and create and maintain wealth.