I tried to resist the urge to write about life in America under the newly inaugurated President Donald Trump. After all, this is an investment blog and not a political one. But it’s hard to ignore the elephant in the room. And with the inauguration literally just days ago, why would I.
More to the point, there has not been a more frequently asked question in the last several weeks than “How will Donald Trump affect the stock market?” It comes in many forms: “Should I wait (to invest) to see how the market reacts to him?”, “Which stocks will do well under the new President?”, “How will his policies affect the economy?”, etc. But it seems to be on everyone’s mind. So, let’s take a look at what’s going on in the stock market under a new administration.
Since the election, the stock market, as measured by the S&P 500, is up 6.87%*. However, from December 9th to today (1/24/2017), it is basically flat. Importantly, in the days leading up to the election, the S&P 500 dropped 4.47%* (from September 7th to November 4th). This gives us a price gain of 4.73%* over the last six months, which is not an outrageous number at all. In the short term, this is obviously election related. Here’s a plausible scenario: before the election, the uncertainty may have caused investors to want to be out of the market; immediately afterwards, reduced uncertainty as well as the hopes of pro-growth policies bolstered the market; and finally, after all the rhetoric, the market stalled as we entered a “wait and see” period. In the long run, this six month period will not be conspicuous at all.
I am a firm believer that Presidents get too much credit when things are good and too much blame when things are bad. I know this sounds like a cliché, but I believe that the business cycle is a more important factor of economic growth than who is in the oval office. This is not to say that Presidents have no effect on the economy. However, these effects tend to be less immediately visible and more subtle in their impact.
The business cycle is the natural ebb and flow of an economy that is created by supply and demand. When an economy is growing, companies will tend to increase production and hire more workers. This creates more consumption, which encourages growth and leads to more production and hiring. Then, at some point, the economy starts to overheat. That is, there is too much production and not enough consumption. This causes companies to reduce employment which results in less consumption and a slowing of the economy. Lather, rinse, repeat.
A full business cycle consists of a period of expansion and a peak, followed by a period of contraction and a trough. According to the National Bureau of Economic Research (NBER), from 1945 to 2009 there have been 11 business cycles in the US. Each cycle has lasted about 69 months on average, with the expansion phase lasting much longer than the contraction phase (58.4 months v. 11.1 months). We are currently in a state of expansion having reached a trough in June of 2009**. That puts us 90 months into this recovery, which is longer than average. However, not as long as the expansion in the 90’s which lasted a full ten years.
Trying to time the market can be dangerous, and trying to invest based on who is President can be just as treacherous. In their 2013 study, Alan Blinder and Mark Watson found that while the economy did better under Democratic Presidents than Republicans, the reason they found was mostly “luck”*** Being lucky is not a great investment thesis. And finally, remember that the best chance to have success in the market is by investing for the long term. As a reminder, since the pre-recession high in October 2007, the S&P 500 (total return) has gained an annualized 6.458%.****
*Non-deposit investment products and services are offered through CUSO Financial Services, L.P. (“CFS”), a registered broker-dealer (Member FINRA/SIPC) and SEC Registered Investment Advisor. Products offered through CFS: are not NCUA/NCUSIF or otherwise federally insured, are not guarantees or obligations of the credit union, and may involve investment risk including possible loss of principal. Investment Representatives are registered through CFS. Verity Credit Union has contracted with CFS to make non-deposit investment products and services available to credit union members.
The S&P Index is a broad-based measure of the domestic stock market performance that includes the reinvestment of dividends. The Index is unmanaged and cannot be purchased directly by investors. Index performance is shown for illustration purposes only and does not predict or depict the performance of any investment.
***”Presidents and the Economy: A Forensic Investigation”, Alan S. Blinder and Mark W. Watson, November 2013
The percentage is not adjusted for inflation and based upon dividends being reinvested.
Check the background of this investment professional on FINRA’s BrokerCheck.
A Financial Advisor registered through CUSO Financial Services, L.P., Gavin has 25 years of experience as an advisor in the Puget Sound area.
“I believe every client is unique and deserving of a personalized financial plan that will help them reach their individual financial goals. Before I make any recommendations, I like to get to know my clients. By asking the right questions, and developing an honest, trusting relationship, I can really get a sense of what’s going to work best for them.”
Gavin graduated from the University of Washington with a BA in Business Administration and started his financial career with US Bank in the Investment Department. Prior to joining Verity in 2006, he spent eight years with Piper Jaffray.
So what is Gavin’s vision for his dream retirement?
“My dream retirement would be absolutely worry free: financially, emotionally, and in every aspect of life. My finances would be in order so expenses for travel, luxuries, and gifts for the kids, grandkids, and great-grandkids would be taken care of. My kids would be financially sound, so I would be confident in their prosperity. This would give me the freedom to travel and play and do whatever it is I want to do.”
When Gavin’s not working, he enjoys spending time with friends and family, watching Husky football and taking weekend trips around the Northwest.
Gavin is registered to transact securities business in the states of AZ, CA, CO, FL, HI, ID, IL, KS, MN, NV, NY, OR, UT, VA and WA.
*Non-deposit investment products and services are offered through CUSO Financial Services, LP (“CUSO Financial”) (“CFS”), a registered broker-dealer (Member FINRA/SIPC) and SEC Registered Investment Advisor. Products offered through CFS: are not NCUA/NCUSIF or otherwise federally insured, are not guarantees or obligations of the credit union, and may involve investment risk including possible loss of principal. Investment Representatives are registered through CUSO Financial. Verity Credit Union has contracted with CUSO Financial to make non-deposit investment products and services available to credit union members. Atria Wealth Solutions, Inc. (“Atria”) is not a broker-dealer or Registered Investment Advisor and does not provide advice. CUSO Financial is a subsidiary of Atria.
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