Stocks closed in the red yesterday as traders assessed the chances of a red versus blue win for the White House, small caps were the only index to close in the green. Bond markets defy the betting markets, acknowledging fresh Harris momentum, while betting markets reversed the reversal.
Secret tool for investing success. Ok, you certainly don’t need me to predict who will be the next President of the United States, as there are plenty coin flippers willing to go on record these days and publicly pick the victor. Think about it. You go out in the public media and say, “so-and-so is going to win the race.” Someone flips a coin, and there is a 50% chance that you will be correct. If you are correct, the next day, you put on your best Sunday suit, go live, and say, “I predicted the winner of the Presidential elections correctly,” you wait for the audience to roar and you hear – crickets – wait, and more crickets. You wonder why you did not receive the adoration you are sure that you deserve. What you might have missed is that it is an even money bet. Wait, now you hear it, there is someone clapping, you squint your eyes to see beyond the white-hot spotlights, and you see that it is your Mom, who is clapping. You risked a 50% chance of being wrong only to receive adoration from the one person who is already your biggest fan. Oh, well.
I know that you know that I was being completely facetious with that little passage. Your vote is important, go out and vote. Today is kind of your last chance. Forget about all of the rhetoric you see on TV and online – and from your own family members. We will hopefully know within a few days who will be the next President of the US. Maybe by the time you go to bed tonight. Now, check out this chart of the VIX Index. Remember that the VIX Index is supposed to give us an understanding of the market’s fear as expressed through volatility. More stress, more volatile. Have a look.
Yeah, you’re nervous alright. Higher highs and higher lows show this positive trend of fear leading up to – well, today, election day. Now, there are plenty of other factors that go into this recently elevated risk, but certainly, elections play a big role in this. Forget about this for a second. I have a question for you. What happens tomorrow, assuming that there is a clear winner when you wake up? Seriously. Will your taxes immediately go up? Will tariff’s double the price of that Samsung TV you were saving for? Will egg prices skyrocket again? What about NVIDIA, Apple, JP Morgan – I don’t know take your pick -- whatever your favorite stocks are. Will those stocks no longer be able to create and grow earnings? Will a Harris or a Trump win refute your thesis for owning the stock?
Look, there are clear policy predilections from both sides that will have impacts on regulations and taxes for both you and the companies that you invest in. But let’s step back for a second. Did you invest in Microsoft on or before the last election on 11/3/2020 because you believed that President Joe Biden was going to enact policies that would make it go up? Of course, you didn’t, but if you did, it certainly went up since he won. The stock climbed by some 98% since last election day. It went up despite rampant inflation, a super wicked-aggressive Fed, two wars, keeping most of Trump’s tariffs in place, and even adding some new tariffs. What about the Dem’s anti-energy policies? Biden cancelled the Keystone XL pipeline permit on his first day in office! Knowing that, you might have sold your position in ExxonMobil or ConocoPhillips on November 4th. If you did, you would have missed earning 257% and 258% respectively.
If you just read through that last paragraph carefully, you might have thought that I was making a case for you to vote Democrat, but I was not. Absolutely not, as the millennials like to say. I was simply demonstrating that while policy, and even politics, do impact stocks, a company’s ability to tackle whatever challenges are thrown at it, is really ultimately what determines how well it will perform.
AND another thing. Did you know that, on average, the annual deficits under Biden were significantly higher than under his predecessor, Trump? The national debt increased by almost 30% under Biden. Seems daunting based on all the recent discussions on the potentially impending deficit swell under Trump or even Harris. Despite all the deficit increases, growing debt, and all that other nasty stuff that I mentioned above, the S&P managed to grow by 71%.
What is my point for all of this? Now I am going to help you by giving you my pro-tip. If you are a long-term investor and you are looking at your portfolio or considering getting involved in some new stocks, ask yourself, will these stocks be higher in two years from now? Will they be higher because of whoever wins the keys to the White House, or because their management teams are top-notch, their products are in high demand, they continue to innovate, their balance sheets are strong, earnings have grown and will continue to grow, and they are able to fend off threats from competitors? If so, you are good to go. Good stocks will weather whatever either administration has to throw at them, just as they have through administrations past. To be clear, I know that I am generalizing a bit and that a win by either Harris or Trump could have a direct impact on some stocks, but for the most part, I think you will agree, if you step back, good companies outperform their peers in all political environments. Can we expect volatility over the next few days, weeks, or even months? Possibly, but remember, you are long-term investor. Stay focused, take a breath, keep your head clear. I will see you on the other side 😊.
YESTERDAY’S MARKETS
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