Insight Blindness


When all the discussion these days is about the Presidential Election tomorrow, we find it apt to quote Andrew Carnegie who said:

As I grow older, I pay less attention to what people say. I just watch what they do.”

However, the question inevitably gets posed as to what impact the elections will have on the stock markets.  Speaking strictly in historical numbers, the stock market would indicate a slight preferential edge for Republican nominations, but the best post-presidential election results come with the combination of a Democratic president with a  Republican legislature (up 21.3%![i]).  Perhaps there really is something to be said for balance.

Statistically more relevant is the association of stock market returns with what is referred to as the ‘presidential cycle’; i.e. how does the market react in each of the 4 years following an election.  The chart below shows those answers.

Stock Market Return by U.S Presidential Term Year 1948-2008

Year Average Annual Return
1 7.41%
2 10.21%
3 22.34%
4 9.79%


Source: S&P 500 Total Return Index

Notwithstanding those interesting figures, there are really not enough data points to speak confidently about what will happen.  The great writer John Paul Kennedy (“The Rise and Fall of the Great Powers”) says the most predictive threat to any country’s freedom and role in the world comes from not having its economic house in order, a factor far larger than the size of its army or current influence in the world.  In that sense, addressing the national debt issue has to be confronted.  Still, correcting it without having the country be fiscally-cliffed into a recession will be the balance act to be walked.

Beyond these presidential appetizers, what really matters to you as our client is how diversified you are in your portfolio.  On that score, no one can touch you (quite literally, as we don’t know a more diversified holding approach).  When people were nervous last October (2011), we said we’re going to stay in the market.  The private sector is working extraordinarily hard and lean these days, and you got rewarded with a 1 year return on the Dow Jones Industrials of 25.59% through September 30, international markets up 13.75% (MSCI EAFE) and emerging markets up 16.95% (“Advisor Insights”, First Mercantile 3rd Quarter 2012).

The country does need a plan and for the first time in a long time it is being talked about.  That’s good news and these presidential times have brought it to the forefront.  On a personal front, let’s be honest and admit we can’t control the country, yet we can control your plan.  That plan is take on no more risk than we need, but let’s go get returns where they exist, and take a long term view.  That’s the only view where you can see the horizon.

In this truly great nation, we look forward to seeing those views with you.

[i] “History Shows Stock Market May Be Rooting For A Split Election Outcome This November” (Kevin Mahn, Forbes, August 28, 2012)