Political Pugilism and Markets

“There are many men of principle in both parties in America, but there is no party of principle.”

–Alexis de Tocqueville

At this year’s FreedomFest, I had the privilege of being on a panel with my esteemed colleagues Dr. Mark Skousen, George Gilder and Roger Michalski. This was a Q&A panel, and the ostensible subject was how would markets perform for the remainder of the year. Now, one of the questions we wanted to address, but didn’t get a chance to, is what impact the presidential election would likely have on markets.

In retrospect, I am glad we didn’t get to that question, because shortly after our panel we learned of the assassination attempt on former President Trump. Then, just one week later, in a dramatic twisting of the tale, President Biden decided to remove himself from the race (more accurately, he was forced out by Democratic elites).

In the immediate aftermath of President Biden’s announced withdrawal, Vice President Kamala Harris was essentially anointed by the party to be its next forebearer, and I must say that from a strictly objective, non-partisan perspective, she has done so expertly.

The race has definitely taken on a new tone since VP Harris acquired the reins, and according to the latest polling, the contest is now extremely close, with both candidates eyeing paths to an electoral college win. As of this morning, the polling data website 538 (the best in the business, in my view) has the average of all the national polls showing Harris at 45.2% while Trump is at 43.4%. That’s about as thin a margin as it gets, and I suspect that margin will shrink the closer we get to Election Day.

So, what impact (if any) will the current political pugilism have on the stock market?

Well, that’s the real question, isn’t it? I mean, A) It’s your money that matters most, which is why you read my work; and B) The market is a forward-looking discounting mechanism that will react in kind to the various policy and regulatory proposals emanating from Washington.

To answer this question, I am going to elicit the help of my friends at Sevens Report Research, who recently dug up some interesting data on the markets over the past nearly eight years, and through most of the last two administrations. A look at how markets performed during the Trump administration versus the Biden administration will provide us with some kind of baseline when assessing what might take place in markets if Trump is re-elected or if Harris wins the presidency.

The one caveat here when assessing the following data is that during the Trump administration, we had the COVID-19 pandemic and the economic response to it. That response, which included a flood of easy money from both the Federal Reserve and the Treasury, skewed market results (to the upside) in 2020.

So, how did the major market segments perform last time during each respective administration? The table below tells us just that.

As you can see, from January 20, 2017, when President Trump took office through January 20, 2021, all but two of the above S&P 500 sectors show a distinct advantage in favor of Trump over Biden.

Now, if we back out the skewed performance in markets during the COVID-19 pandemic, then we still get a decided outperformance for Trump versus Biden, although as you can see in the far-right column of our table, that outperformance is not nearly to the same degree as it was when you include the pandemic period (remember that despite the pandemic, markets enjoyed a stellar 2020).

One very interesting thing to note here is that when it comes to the performance of the broad domestic equity market, as measured by the SPDR S&P 500 ETF (SPY), we see a virtual tie in performance over the periods that don’t include COVID-19. So, Trump outpaced Biden by 50.74% to 49.59%. Here again, this is about as close as it gets (and hey, it’s even closer than the current tight gap between candidates in the latest national polls!).

The bottom line here is that based on the history of past performance, Trump is likely to be better for equity markets than Harris. However, keep in mind that Harris won’t have the same policy agenda as Biden, and Trump 2.0 isn’t likely to have the exact same policies as he did in his first term.

One additional thing to think about here is that if you are looking to take advantage of short-term winners and/or losers from this election, consider that this presidential contest is likely to be the most expensive ever in terms of candidate and Political Action Committee (PAC) spending on advertising.

This is especially true if you happen to be in a “swing state” where the contest is extremely tight, and where the winning of electoral votes will, in fact, decide the election outcome. According to a report by research firm eMarketer, total political ad spending in the country this year is expected to rise about 27% from the election year of 2020 to $12.15 billion. That’s a whole lot of money shuttled into the coffers of media giants.

One media giant likely to benefit mightily from this big political spend is Fox Corporation (FOXA), as both candidates advertise on the network to boost their respective profile and to take their case directly to the people. If you’d like to find out more about how my subscribers are positioned for this big political ad spending, please check out my High Velocity Options advisory service today.

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On America’s Abundance

“America’s abundance was created not by public sacrifices to ‘the common good,’ but by the productive genius of free men who pursued their own personal interests and the making of their own private fortunes.”

–Ayn Rand

This political season, as in every political season, we’re going to be bombarded by chatter from both parties about how to “fix” the country. One side is going to hit you with the bromide that if we can just “come together,” we can save democracy. The other side is going to tell you that they are the only ones who can make the country great again. To this I say… Don’t believe the hype!

No politician ever made the country great and no amount of coming together has ever contributed to America’s abundance. It is only the productive genius of free men pursuing personal interests and private fortunes that can ever, and that will ever, keep our country great. You see, men go crazy in congregations… they only get better one by one.

Wisdom about money, investing and life can be found anywhere. If you have a good quote that you’d like me to share with your fellow readers, send it to me, along with any comments, questions and suggestions you have about my newsletters, seminars or anything else. Click here to ask Jim.

In the name of the best within us,

Jim Woods