recession

If there was one word for 2020, it very well might be “uncertainty” — rarely a positive noun in the investment world. Global pandemic aside, a presidential election is traditionally a time for some uncertainty among investors to the degree they believe a president’s party or policies can shift the market.

However, data suggests that degree of influence an election result has on the market is not always so clear. There have been 17 presidential elections since 1950, and each comes with unique variables that may impact market performance. Collecting and organizing the data from these elections is made easier using YCharts, a leading research firm for financial advisors based in Chicago, IL. “YCharts allows Ballast Advisors to collect historical data, like election data, export it to an Excel spreadsheet for analysis and detecting trends, and present it in a way that is easy to digest for clients,” says Steve Schmidt, a partner at Ballast Advisors. Schmidt makes it clear that the data and graphs from YCharts are meant to provide context, not as investment advice. Past performance should never be used to indicate future results.

“We often hear from our clients during an election cycle,” says Schmidt. “They often have concerns about the impact of an election on their financial plans.” While every investor is different, Steve Schmidt and the professionals at Ballast Advisors have taken the time to answer three common questions heard from investors during this election

How differently do markets perform when a Democrat or Republican candidate is leading in major polls?

According to trends observed in the data from YCharts, when presidential candidates are “tied” in polling, the S&P 500 daily and cumulative returns are negative. On average, the trends in the YCharts data reveals the market tends to favor a Republican candidate leading the major polls.

“Keep in mind, leads in political polls often vary depending on the source of the poll,” said Schmidt, “polls are not an exact science, and may also have inherit bias depending on the targeted participants of the poll.”

S&P 500 Performance By Party Leading Polls

Two strong examples of this pattern: S&P 500 percent change under poll leaders in the 1988 and 2000 U.S. Presidential elections. See disclosures below.

Does the market react differently when a Republican or Democrat candidate is elected?

Although, historically the market may initially react favorably to a Republican candidate because of the belief that their policies are more “Business friendly” and therefore more stock-market favorable versus Democrat candidates. However, data demonstrates that once a president takes office, in the long run the market has performed better under Democratic presidents on average.

“Today’s economic conditions and thus, market performance, is often a cumulative effect that can be a decade in the making,” Schmidt says. “Today’s economy often stems from the work of both current and previous administrations combined.”

How have other major asset classes performed under recent presidents?

According to YChart data, U.S. and Emerging Market Equities have been among the best performing major asset classes since Bill Clinton’s 1993 inauguration. In the last 30 years under four different presidents, U.S. and International Equities handily outperformed under Democrats, and Emerging markets have slightly outperformed under the Republican presidents (Performance through Set 14, 2020 for Donald Trump).

“At the end of the day,” Schmidt reminds us, “markets fluctuate for a host of reasons, many of which are misunderstood by seasoned investors. The best laid investment plan is to stay diversified.”

Summary – What does this mean for you?

What does this mean overall? If you’re basing your investment decisions on what party is or isn’t elected during presidential elections, you’re likely hurting your portfolio more than helping it. The person occupying the White House is just one of many variables that impact investment values. For example, the Dot.com burst in 2001, and the financial crisis in 2008 greatly impacted the markets beyond the control of Presidents Bush and President Obama.

“At Ballast Advisors, we recommend in the face of uncertainty clients ‘stay invested,’ because almost without exception we’ve accounted for money needed in the near-term,” Schmidt reminds us. Prominent investor Peter Lynch once said, “Far more money has been lost by investors preparing for corrections, or trying to anticipate corrections, than has been lost in corrections themselves.” According the chart below, the S&P500 has consistently grown in value, no matter who is in office.

Rather than invest in stocks under only a Republican or Democratic president, stay invested in stocks for the long-term under all presidents.

Data & Disclaimers

The opinions expressed herein are those of Ballast Advisors, LLC and are subject to change without notice. The third-party material presented is derived from sources Ballast Advisors consider to be reliable, but the accuracy and completeness cannot be guaranteed. Ballast Advisors, LLC is a registered investment advisor under the Investment Advisers Act of 1940, as amended. Registration does not imply a certain level of skill or training. Past performance is no guarantee of future results. All investing involves some degree of risk. Nothing contained herein is an offer to buy or sell a security, investment strategy or product. More information about the firm, including its services, strategies, and fees can be found in our ADV Part 2, which is available without charge upon request.

Historical market performance for the S&P 500 and other asset classes accessed via https://go.ycharts.com/hubfs/Guide_to_How_Presidential_Elections_Impact_the_Stock_Market.pdf

Presidential term dates can be found https://en.wikipedia.org/wiki/List_of_presidents_of_the_United_States

Polling sources: 1952-2012 elections: Gallup; 2016-2020 elections: Marist College, Monmouth University, Siena College/The New York Times Upshot, ABC News/The Washington Post ( A+ rated pollsters FiveThirtyEight). How this polling data works: https://projects.fivethirtyeight.com/pollster-ratings/ How this polling data works: Pollster data sourced from FiveThirty Eight and is good through May 19, 2020. FiveThirtyEight’s pollster ratings are calculated by analyzing the historical accuracy of each firm’s polls along with its methodology. Accuracy scores are adjusted for the type of election polled, the poll’s sample size, the performance of other polls surveying the same race, and other factors. FiveThirtyEight also calculates measures of statistical bias in the polls.

Data was aggregated by YCharts with the end-date of each poll’s collection period serving as the charted poll date.

©2020 YCharts, Inc. All Rights Reserved. YCharts, Inc. (“YCharts”) is not registered with the U.S. Securities and Exchange Commission (or with the securities regulatory authority or body of any state or any other jurisdiction) as an investment adviser, broker-dealer or in any other capacity, and does not purport to provide investment advice or make investment recommendations. This report has been generated through application of the analytical tools and data provided through ycharts.com and is intended solely to assist you or your investment or other adviser(s) in conducting investment research. You should not construe this report as an offer to buy or sell, as a solicitation of an offer to buy or sell, or as a recommendation to buy, sell, hold or trade, any security or other financial instrument. For further information regarding your use of this report, please go to: ycharts.com/about/disclosure

The S&P 500 index is an unmanaged market-capitalization-weighted index of 500 common stocks chosen for market size, liquidity, and industry group representation to represent U.S. equity performance. The index is provided for comparative and informational purposes only. It is not possible to invest directly in the index shown.

This is the question many individuals and families are asking in today’s uncertainty. Aside from the obvious concerns for the health and safety of the community, market volatility is stressful and economic slowdown may be hard on business owners and employees as we navigate this pandemic as a society.

Ballast Advisors, a Registered Investment Advisor (RIA) and fiduciary firm based in the Twin Cities, guides individuals and families to achieving their goals using financial planning and time-tested investment strategies. We caught up with Managing Partner Paul Parnell to have him answer a few frequently asked questions during this period of financial uncertainty and anxiety.

Will this recession last?

Steep declines in the stock market have often coincided with a downturn in the economy. There are still many unknowns, but since World War II, 9 out of the past 12 Bear markets have resulted in recessions, defined as the market dropping 20% or more from its peak.

“It’s reasonable at this time to prepare for a longer-term recession,” says Paul Parnell. “It is hard to keep emotions out of it, but there are smart steps that you can make now to stay financially sound.”

Should I throw in the towel?

Panic selling or “capitulation” is what you begin to see in these uncertain times, but it is important investors understand some key points.

“If you have a solid financial plan, you’re already prepared for this ahead of time,” says Parnell. “At Ballast Advisors, we work with our clients to have balanced and diversified investment portfolios and we help to mitigate risk depending on our client’s age and stage of retirement. Generally, most people gradually reduce risk as they approach retirement.”

Of course, a diversified portfolio is no guarantee that you won’t suffer volatility, but long-term strategies are based on the idea that financial markets are historically cyclical.

“We start to see very high emotions in times like this, and people are tempted to throw in the towel,” says Parnell. “And while it’s very difficult to watch, capitulation can be a detriment for your entire portfolio. For example, after the lows of 2009 recession we saw markets increase 45-54% from the bottom. If you miss this opportunity, it may impact you forever.”

What changes do I need to make in spending or saving?

In addition to your long-term investments, Ballast Advisors suggests this is a good time to review your budget.

“Discretionary expenses are the first ones to go,” says Parnell. “If you don’t have to reduce savings, don’t.” Keeping with the philosophy of buy low and sell high, Paul adds, “Try to increase savings, as long as you have the proper cash reserve.”

With the mandated shutdowns, Ballast Advisors suggests you save money on travel, activities, dining out, and similar activities. You may also find savings by negotiating new rates on services, as companies may rather keep you as a customer than lose your business.

“Typically having 3-6 months, salary in cash reserve is recommended. If you are dealing with uncertainty with unemployment, you should increase that to 12 months,” he says. After that is established, Parnell recommends looking at opportunities to increase long-term investment savings.

“Market downturns are generally temporary. You stand to make money on dollars you invested in a downturn,” says Parnell. “We saw it happen after 9-11 and in 2009. If you’re a retiree, and you supplement income from your investments, cutting your current distributions can make a big difference when markets recover.”

Emotions and Money

“I love Warren Buffet’s quote on the stock market and investing: ‘Be fearful when others are greedy and greedy when others are fearful’,” says Parnell. “You cannot tie emotions to decisions about money.”

Anxiety levels are high for all investors currently. But it’s important to keep perspective, and he suggests limiting your exposure to media that tracks the market volatility daily.

“I cannot emphasize that enough to clients, I’d be a nervous wreck if I watched the markets on TV all day, and I am in this business,” he remarks. “We believe in staying well grounded.”

These times are hard, no doubt, however, this is the reason you do financial planning, to plan for the uncertainties in life. This has worked in the past and it will guide you in the future.

“If you are looking at retirement in 5-10 years, you should be looking for a financial advisor, it’s critical,” says Parnell. “Your portfolio should begin to match what it will look like in retirement.”

For more information on how Ballast Advisors helps clients with personal financial planning, executive benefits, and saving for retirement, see www.ballastadvisors.com/.

IMPORTANT DISCLOSURES

The opinions expressed are those of Ballast Advisors, LLC. The opinions referenced are as of the date of publication and are subject to change due to changes in the market or economic conditions and may not necessarily come to pass.

Ballast Advisors, LLC is a registered investment advisor under the Investment Advisers Act of 1940, as amended. Registration does not imply a certain level of skill or training. More information about the firm, including its services, strategies, and fees can be found in our ADV Part 2, which is available without charge upon request.

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