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Weathering the Storm as Americans: Celebrating the Grit That Built Our Country

Anyone who has listened to me over the past few years knows I have a troubled view of our near-term economic future. I believe we will face some serious hardships and transformations in our economy, and fighting through these will be necessary to achieve a healthier financial future for our nation. 

 

Yet, as we celebrate Independence Day, I can’t help but also be encouraged and inspired by the strength of our country. Despite the economic concerns and the political division we are facing in our country, we are incredibly fortunate to be American citizens. 

 

Right now, it feels impossible to agree with anyone on the opposite side of the aisle, and I know we’re all dreading the political commercials and trash slinging that’s sure to come — and has already begun — ahead of this upcoming presidential election. We won’t even get started reflecting on the recent “debate.”

 

But throughout history, our country has been tormented with division, disaster, and collapse. We have always conquered those obstacles, and we can do it again — together. 

 

Take the story of Founding Fathers Thomas Jefferson and John Adams for example. These two future presidents were linked together during the Continental Congress and founding of our country. However, when Adams became president in 1797, he and Jefferson — then the vice president — had different ideologies. Adams favored a central government with more control, while Jefferson wanted a federal government that deferred to individual states’ rights. (Sound familiar?) The two men fought often and were enemies for years afterward. 

 

Famously Jefferson's political camp accused President Adams of having a "hideous hermaphroditical character, which has neither the force and firmness of a man, nor the gentleness and sensibility of a woman." 

 

In return, Adams' men called Vice President Jefferson "a mean-spirited, low-lived fellow, the son of a half-breed Indian squaw, sired by a Virginia mulatto father."

 

That’s some high caliber mud-slinging.

 

Then, on Jan. 1, 1812, Adams wrote to Jefferson to mend their fences. The two re-ignited their friendship and tight bond in the years that followed. On July 4, 1826, Adams, at the age of 90, spoke his last words before dying: “Thomas Jefferson still survives.” However, Jefferson had died just five hours earlier that same day at the age of 83. 

 

Two presidents. Two vastly different ideals. One friendship built on love for their country and rebellion against the British. 

 

Today, the division in our country feels unprecedented, but division has been part of the fabric of our nation since its inception. Two men who loved their country and so fiercely believed in freedom saw different ways to lead the nation — and ultimately became close in spite of it. We can do the same. 

 

We live in a great nation. We have natural assets unlike any other country in the world, flanked by two powerful oceans. We have incredible inland ports that provide us with support and protection, too. We have a competitive edge and drive over the rest of the world, and that has only evolved stronger over the past 250 years. Our democracy has withstood the test of time, and it will continue to hold strong over the many, many tests it has yet to endure. 

 

It’s just what we do as Americans. We don’t hide from the obstacles. We fight through them, and in the end, we come out stronger and better than ever. It’s easy to be cynical, but it’s American to know it’s in our very foundation to weather any storm. 

 

Let’s talk a moment about elections.

 

The noise can be deafening.  It seems to come from everywhere, all the time.  It can cause headaches, frustration, even anxiety.  Sometimes, you wish you could turn it off altogether.  . 

Election season is one of the most important aspects of our political system, but there’s no doubt that getting through it can be stressful.  All of us, at some point, will wonder things like, “What if my preferred candidate doesn’t win?”  “Who is my preferred candidate, anyway?”  “Does so-and-so really mean this?”  “Did so-and-so really say that?”  “What’s fact and what’s fiction?” 

 

But one thing you shouldn’t have to stress over is how the elections will impact the markets.  There are a lot of misconceptions that spring up every four years about what presidential contests might mean for your portfolio.  Most of these cause investors to worry unnecessarily.  As a financial advisor, it’s my job to help you feel confident in your financial future, not anxious.  So, in this letter, let’s do a brief dive into three misconceptions about election season and the markets. 

 

The first misconception is that presidential elections lead to down years in the markets.  It’s understandable why we might feel this way.  When we look back at past elections, the first things we remember are probably the controversies, uncertainties, and negativity.  Election years feel volatile in our minds and memories, usually because there’s so much drama and so much at stake. 

 

But statistics prove this misconception is a myth.  Since 1944, there have been twenty presidential elections.  In sixteen of those, the S&P 500 experienced a positive return for the year.  In fact, the median return for presidential election years is 10.7%.  Of the four election years that saw a negative return, two did occur in this century – in 2000 and 2008 – but on both occasions, the nation was either entering or in the midst of a significant recession. 

Now, we do sometimes see increased volatility in the months leading up to an election.  If we just look at how the S&P 500 performed from January through October in a presidential election year, the median return drops to 5.6%.  That’s not bad, but it is nearly 50% lower.  This suggests the uncertainty over who will triumph in the election – and the debate over what each candidate’s policies will mean for the economy – does tend to have at least some effect.  Then, as the victor is announced and the picture becomes a little clearer, volatility tends to subside, and investors move on to other things.  So, in that sense, election season does matter, but nowhere near what the media may have you believe.  Elections are just one of the many ingredients in the gigantic stew that is the stock market…and they’re far from the most important.    

 

The second misconception is that if one candidate wins, the markets will plummet.  This narrative is, frankly, driven by pure partisanship.  The fact of the matter is that the markets have soared under both Republican and Democratic presidents.  Naturally, they’ve occasionally soured under both parties, too.  Since 1944, the median return for the S&P 500 in the year after a presidential election is 9.8%.  Since 1984?  The median return rises to over 24%. 

The reason for this is because of that gigantic stew I mentioned.  You see, the markets are driven by the economy more than by elections.   By the ebb and flow of trade, the law of supply and demand, by innovation and invention, by international conflict and consumer confidence.  And while the president does have an influence on all this, it’s just one of many, many influences.  As a result, the markets are far more likely to be affected by inflation and whether the Federal Reserve will cut interest rates than by the election.

 

When you think about it, the markets are like life.  The course our lives take isn’t determined by one gigantic decision, but by the millions of small decisions we make every day.  The same is true for the markets.  I don’t know about you, but I find this comforting. 

The third misconception is that we have no control over any of this, and thus, no control over what happens to our portfolio. 

 

It’s true. You and I can’t dictate who the president will be.  We can’t determine how the markets will react.  But what we can control is what we will do.  And that is a mighty power indeed.  As investors, one of the keys to long-term success is filtering out the noise and focusing on what really matters. 

 

You see, the goal of all political campaigns – and the media that covers them – is to create noise.  That’s because noise provokes emotions.  Fear.  Anxiety.  Anger.  A greater emotional response leads to more clicks, more views, more shares, more engagement…and, yes, more money.  It’s understandable why campaigns and the media want these things.  But what we must guard against is letting those emotions drive our financial decisions.  Emotions promote the urge to do something – buy, sell, get in, get out, take on more risk, less risk, you name it.  They prompt us to make short-term decisions to alleviate what is, when you think about it, a short-term concern. 

 

A presidential term lasts four years.  But the goals your clients have saved for, and the time horizon they have planned for, lasts much longer than that.  That’s why our investment strategy is built around the long-term.  It’s designed to help you not just tomorrow, or next month, but years and years from now.  It’s designed so that the president of the United States, as important as he or she may be, is only a passing mile-marker on the much longer road to your goals and dreams. 

 

So, as we draw near to another election, remember: Tune out the noise.  Remember these misconceptions and avoid them.  And most of all, remember that my team and I are here to answer your questions and help you however we can.  Please let us know if there is ever anything we can do.

 

Happy Independence Day. 

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