21 days until the election
There are 21 days until the election. With Trump’s numbers falling there is a lot of talk about the Senate and the House switching to Democrat as well. The Senate is probably a toss up and there is a 25% chance that the House will go Democrat.
How partisan politics affect the markets
Historically, when there is a Democratic Congress and a Democratic President, we have seen the second lowest average returns in the markets (See chart below). We don’t think this will be the case but there are still 21 days to go.
(Source: Strategas Research Partners)
Are we pro Republican or Democrat?
We are not saying we are on either side of the political spectrum. We are simply stating this is what the historical data tells us about how the markets could respond and how it could impact the portfolios of our clients.
The markets are priced towards Hillary Clinton
Today it seems that the markets have priced in Hillary Clinton winning the election and the Republicans retaining control of the House and Senate. What will bring about market volatility is any uncertainty about the results of the election. We can see this in the Consumer Expectations chart below which shows we are at the lowest level in 2 years. This has a lot to do with the uncertainty around the election. No one is really sure what is going to happen in 21 days.
The market is slowly unraveling
We did a vlog earlier this year on how the Fed’s fear of GDP growth were just right to keep interest rates down and the stock market and oil going up. Everything seemed to be working perfectly until a few weeks ago when we saw this flip. The markets have been down week over week and interest rates up. We are also seeing gold go down. Every asset class is seemingly going down. We are seeing the dollar strengthen drastically which means US products get more expensive abroad and it’s cheeper for us to buy products from overseas. This could impact your portfolio as corporate earnings continue their downward decline.
Pensions are upside down and depressing the markets
Pensions on the private, local, state, and federal level are upside down because of the low interest rates. The low returns have made it harder to make pension payouts. Consumer spending has taken a hit because the Baby Boomers, who are a huge push for consumer spending, are saving rather than spending their money. This is depressing the markets when normally we would have counted on them to spend more. The Fed did not foresee these consequences when they lowered interest rates back in 2008.
What the markets need
The markets need consumer spending to go up which would lead to corporate earnings going up and the markets rising. We have seen corporations improve their earnings but not to the level they need to be over these last 8 years. They’ve increased earnings by cutting costs, thanks to technology, but now they need consumers to start buying. This is the trend we are seeing in this 4th quarter.
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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.