WORRIED ABOUT THE ELECTION?!!| CROUCH CONNECTION, AUGUST 2020 "ADV"
WORRIED ABOUT THE ELECTION?!!
As you can imagine, I am getting many questions recently about what impact the upcoming Presidential Election might have on the stock market. With August and September historically having been unkind to markets anyway, certainly caution is warranted. As we have said before, the market hates uncertainty.
But looking at the market averages, there doesn’t seem to be much caution being practiced by investors. The Nasdaq Composite is at an all-time high (up 22.72% YTD), the S&P 500 is up 3.73% YTD, and the Dow Industrial Average is slightly behind at down 3.87% for the year.
That is certainly not what one would normally expect given the uncertainties created by the Covid pandemic and an upcoming Presidential election with polar opposite possible results. How should we evaluate this situation?
THREE SCENARIOS
With less than 100 days to go before this year’s election and the polls predicting a Democratic sweep, Barron’s Magazine had an article this week attempting to weigh the upside and downside of various election results. They point out:
“…election polls are notoriously unreliable, as Hillary Clinton—and President Trump—learned in 2016…anything could change, from voter sentiment to the candidates’ standing, to the trajectory of the coronavirus pandemic
So what are the realistic possibilities? Here are the three most likely scenarios:
Scenario #1. President Trump wins reelection. If Trump wins reelection, there is almost no chance that Republicans would lose control of the Senate and Democrats would almost certainly retain control of the House. Barrons says this would mean:
“Four more years of market-friendly tax and regulatory policies (which) would benefit small companies and technology and financial firms…
In other words, more of the same.
Scenario #2. A Democratic sweep with Biden winning, the Democrats taking control of the Senate and retaining control of the House. Currently this is what the polls are predicting, similar to 2016, so we should be prepared for a change.
“A Democratic sweep would mean higher taxes: Biden has proposed reversing half of the Trump corporate tax cut, which would raise the tax rate to 28%. He has also proposed introducing a Social Security “donut hole” by levying the Social Security payroll tax on wages above $400,000. His plan would restore the top personal income-tax rate of 39.6% (Trump lowered it to 37%), phase out the 20% deduction on qualified business income, and reinstate the deductions for those with income above $400,000.
There’s more: A Biden administration would eliminate preferential treatment of capital gains and dividends for higher earners, raise taxes on income earned by foreign subsidiaries of U.S. companies, and tax unrealized capital gains at death”
That doesn’t sound very good for investors but Barrons goes on to point out that markets often overestimate the likelihood and magnitude of proposed policies, so any selloff resulting from a blue-wave sweep could be a buying opportunity.
Scenario #3. Biden wins but Republicans retain control of the Senate. Historically, this is the most favorable result for the stock market. Ned Davis Research analysis shows that the Dow Industrial average posted an average gain 7.1% a year when Republicans controlled both the White House and Congress, 3% a year when Democrats controlled both Congress and the Presidency, but 8% per year with a Democratic president and a spilt Congress.
Right now, that seems to be the most likely possibility. We’ll just have to wait and watch Barrons’ advice?
. …all the more reason, then, for investors to hedge their bets on the election results, preparing for several possible outcomes.”
We agree that investment portfolios should be carefully balanced, not just because of the upcoming election, but because the market is constantly dealing with uncertainty. Certainly, the coronavirus should have forever dispelled any notion that one can anticipate what the market might do
BALANCED PORTFOLIOS
Two heads are almost always better than one, and the Aspen Grove Asset Management team has recently proven that beyond any doubt recently. I have mentioned previously that Kay O’Connell has become a valuable member of the team here, and her work during the coronavirus work-from-home period has produced some very interesting research.
We have recommended balanced portfolios for years in our efforts to reduce market risk while still delivering the returns high enough to provide adequate income for our retired investors. But until Kay’s deep dive into the best asset allocation possibilities, we were using measures that seemed to disappoint us from time to time. Our analysis has now clearly shown us how dozens of different asset allocation combinations have behaved in past years and given us the tools to distinctly show our clients the historical risk and rewards of various combinations.
Without getting in the weeds too far here (a picture is worth a thousand words), let me just say that we are more enthusiastic about our ability to meet your expectations than we ever have been, and we look forward to meeting with each of you and presenting the results of our research.
PLEASE CALL US!
Please contact us and let us know your availability for a meeting, either in person or by way of Zoom. We have adapted to the needs of our at-risk clients and can now set up a Zoom meeting that will surprise you with its effectiveness. Zoom is remarkably user-friendly, and we will be glad to talk you through the set up. All you need is your computer…no special equipment required. We’re looking forward to seeing you soon.
Sincerely,
Dave Crouch Kim Blackburn Kay O’Connell
Registered Principal Branch Operations Manager Financial Advisor
Financial Advisor
"We believe that a policy of portfolio concentration may well decrease risk if it raises, as it should, both the intensity with which an investor thinks about a business and the comfort-level he must feel with its economic characteristics before buying into it.
-Warren Buffett
Any opinions are those of the author and not necessarily those of Raymond James. Expressions of opinion are as of this date and are subject to change without notice. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Investing involves risk and you may incur a profit or loss regardless of strategy selected. Past performance does not guarantee future results. Asset allocation and diversification do not ensure a profit or protect against a loss.
The NASDAQ composite is an unmanaged index of securities traded on the NASDAQ system. The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market. The Dow Jones Industrial Average (DJIA), commonly known as “The Dow” is an index representing 30 stock of companies maintained and reviewed by the editors of the Wall Street Journal. Inclusion of these indexes is for illustrative purposes only. Indices are not available for direct investment.
