Ready for some good news?
The stock market has been setting record highs and corporate earning remain good.
Inflation is way down, hovering around a manageable 3%.
On average, American workers are getting ahead. Over the past four year. they’ve seen 37% increased income versus 21% inflation.
Mexico has replaced China as top exporter to the U.S., a growing trend reducing supply chain vulnerabilities.
Now, what we’re less sure of – next Tuesday’s election and what it means to markets:
With people voting in at least 76 countries in 2024, we are in the biggest election year ever, affecting 4.4 billion people, or 60% of the global population.
The anticipation building up to elections often brings with it questions about how financial markets will respond. But the outcome of an election is only one of many factors affecting stocks and bonds. Shareholders are investing in companies, not politicians, and stocks haven’t shown much of a party preference.
On this point, it might be good to consult Warren Buffett’s investment guru, Benjamin Graham, who said, “In the short run, the market is a voting machine but in the long run, it is a weighing machine.” So, fundamentals eventually overtake collective sentiment, emotion, or partisan passion.
History of market returns in election years might offer some reassurance as well as market agnosticism (see chart below).
Currently America’s electoral anxiety runs high in the extreme. So, is 2024 just one more election year, can it be charted in advance?
The presidential vote again will be close and, under the best scenario, requires days to tabulate. Already there’s a tsunami of legal challenges to who gets to vote and how to count and certify the results. Whether there’s an echo of the January 6 U.S. Capitol riots remains a concern, especially if the count becomes too drawn out and vulnerable to conspiracy theorists and foreign actors.
From the abhorrent events of January 6, we take small consolation in how surprisingly stable the stock market remained over those shaky days. In fact, markets continued an upward trajectory in the months after, with the S&P 500 hitting new highs in early 2021.
Investor confidence had been encouraged by certification of the election, anticipated government stimulus, vaccine distribution, and infrastructure spending.
We lived through interesting times then. With today’s ample geopolitical risks that we can name, we still do. Again and again, we believe this underscores the importance of proper asset allocation for the long term. In short, expect the unexpected.
Wall Street Weisenheimers now predict a Trump victory. However, we recall a 2012 Investment News survey. In that election, 71% of our colleagues predicted an Obama defeat. Remember President Romney?
Expect higher taxes.
Interest payments on the national debt are now greater than what we spend on defense. Debt maintenance is also crowding out many policy priorities. Plainly, under the next Administration, taxes have to go up, a far greater likelihood than reducing entitlement programs and other expenditures.
Despite the backdrop of a $34 trillion national debt, both candidates are promising all sorts of goodies – tax cuts galore from Trump and social programs aplenty from Harris. Major provisions of the 2017 tax reform law are due to expire in 2026, so the pressure is on to bring revenues into closer alignment with expenditures. Not to do so, of course, threatens to rekindle inflation while further short-changing younger generations. We will address tax changes in future newsletters as well as our financial planning and portfolio reviews.
Regardless of one’s politics, Hanke & Co. is proud to serve our clients in meeting their goals and honoring their values. We are Americans all. Hopefully, you will or have already exercised your franchise.
As always and especially during particularly anxious times, we are here to talk through your financial plan, portfolio strategy, and any other way we can be of help.
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