Lessons Learned

This is going to be an eventful week with Tuesday being election day. History has taught us that regardless of what the outcome of the election is, whether your party and candidate wins or loses, our country will and always has continued to move forward due to innovation, determination, and the American spirit. As we get into this week and discussions, we wanted to talk about how the markets have reacted in relation to the elections because no matter who wins the industry will continue to move forward regardless of what’s taking place in Washington, DC. Also, in 60 days we will be in January of 2021. With all this being said, there’s a lot taking place and we’re going to make sure we keep you updated through all of it.

Common Questions

Election week is finally here and without having a crystal ball and without picking sides, we want to answer some common questions that we have been getting from clients over the past couple of weeks regarding the election. Probably the most common question we have been asked is regarding how the markets will react if the election results are not decided for a few days or even a few weeks. Looking back in history, in 2000 with the Bush vs. Gore election, the results were not announced for five weeks. From election day in 2000 to the end of the year, the S&P 500 fell 7.8%. Just to do a little comparing here, in 2000 we were going through the.com bubble where the technology stocks were trading back and this year, we are in the middle of a pandemic. At the end of the day, now more than ever, it is important to have a diversified strategy in our portfolios, which we do. The second question we have been getting a lot is about how the market will perform if we see a blue wave where the Democrats take control of the White House and control the Senate while holding the house. We know that throughout history, on average, the market performs better with a divided government. We will see what happens after this election but throughout it all, if you have questions, please call us. We want to answer questions you have especially in a week like this, where there is a lot of uncertainty.

Behind The Data

On last week’s vlog, we mentioned that there was a lot of data points coming out over the next eight days from last Monday that outside of the election, would have a large impact on the future. We want to review some of the data points now that they are in. It is very important to not only look forward but also to know what has occurred when we think these big events are happening. One of the big topics we wanted to look at was earnings. Earnings came in strong last week. We talked about the five most important companies in terms of size and said that it was going to be important to watch, to see how they did. The data pointed out that they all beat estimates which we are seeing a theme arise among other companies. The S&P 500 is made up of the 500 largest publicly traded companies and of those 500, 319 of them have reported third-quarter results and 86% of them are beating estimates. Now these are low estimates and there is still a year-over-year drop in earnings at around 10%, but we came in expecting a 16% to 20% drop in earnings, so a 10% drop is fantastic. Why is this important? Regardless of the election, whoever wins is going to inherit an economy and a stock market with corporations that are earning money. The fact that corporations are earning money and doing well is very important. The fact that the stock market dropped in the face of these good reports, is likely a sign that there could be upside potential. Once people stop looking at the election and take a look under the hood, they will realize that companies are coming back from what was a very deep recession, which is extremely positive. We saw more positive news when the GDP number came out beating expectations with a 33% annualized growth rate. The job rate also came out this week. It comes out each week and is an important data point that we watch because it is so timely. That number came in showing 751,000 jobless claims. Even though that’s a large number, it’s down from 791,000 from the week before, which is a large drop. There’s clearly positive news out there and if we can get through this election, no matter who wins, they stand to inherit a strong stock market, a strong economy and it’s something we’re looking at when we’re looking to make future investments.

Historical Predictions

August 3rd was 90 days out from the election. On that day, the S&P 500 was at 3294. History has told us to look at this 90-day mark number and use it as an indicator of who is going to win the election. History says that your incumbent party, being Trump, would win if that number is above the 90 days starting level of 3294. Since 1984, that indicator has been 100% correct in predicting elections. Since 1928, that indicator has been 87% correct with only being wrong three times since 1928. Last Friday the market closed at 3270. We are now looking at a resistance level of 3360 and a support level of 3200. Once again, just like at the beginning of the 90 days, we are kind of hovering around that 3,300 range. We might not see a winner for several weeks after the election. The Masters is coming up this month and we might end up seeing who is named the winner in that tournament before a president is named. We’re going to be taking historical data, technical indicators, the fundamentals of corporate earnings and what’s actually happening in the economy and we’re going to be watching this to understand where we go for the next 60 days into next year. Nobody can predict the future, but we’re going to do our very best to figure out what direction the trends are going to go.

 

 

Greg Powell, CIMA®
President and CEO
Wealth Consultant
Email Greg Powell here

Bobby Norman, CFP®, AIF®
Managing Director
Wealth Consultant
Email Bobby Norman here

Trey Booth, CFA®, AIF®
Senior Vice President
Wealth Consultant
Email Trey Booth here

Adam Vansant, AIF®
Associate Vice President
Wealth Consultant
Email Adam Vansant here

 

Fi Plan Partners is an independent investment firm in Birmingham, AL, serving clients across the nation through financial planning, wealth management and business consulting. Fi Plan Partners creates strategies in the best interest of their clients using both fee based investing and transactional investing.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.

Economic forecasts set forth in this presentation may not develop as predicted.

No strategy can ensure success or protect against a loss.
Stock investing involves risk including potential loss of principal.

Securities and advisory services offered through LPL Financial, Member FINRA/SIPC and a registered investment advisor.

#485 Now What? #483 The Next Eight Days