Clarity Capital Management Notables - May 2024
CLARITY CAPITAL MANAGEMENT NOTABLES AUDIO VERSION
Happy Spring to our community! As we take our breath after a busy tax season and we start seeing some sunshine here in Oregon, we thought it would be a good time to discuss what this election year might look like in the markets. Although our office does its best to stay out of politics, there is so much noise around elections every four years that we might as well spend some time on it. Make sure to check out the links below for a bunch of additional great graphics on the subject. We’ll spend this Notables discussing some of our most asked questions.
The big takeaway: our lovely politicians think they matter more than they actually might in the long-term. Let us know what questions you have or if we can help with anything. We love the feedback!
Democrat or Republican: Who has Better Performance Over Time?
As we think about the different questions we have received over the years, this is one of our favorites. If we invested $10,000 in 1961 and left the money fully invested only when our favorite party was president through the end of 2023, we see a giant underperformance when compared to simply leaving the money fully invested no matter who is president. We know that time in the market is typically the most important part of long-term results. Although our leaders want us to think they are pulling the levers, staying the course has provided investors with the best rewards over time. In this case, the results are quite staggering!
Is an Election Year a Good Time to Invest in the Stock Market?
We’ll bet you can guess the answer here. Historically, most years are positive years for the stock market, and it is nearly impossible to predict what the next year holds. That being said, if we look at how the stock market has performed from 1928 to the end of 2023 in four-year cycles based on the presidential election, we see that election years (this year) tend to be pretty good years to be a stock investor. A whopping 75% of election years are positive (with an average return of 7.5%). The only year with a better record than an election year is the year prior to one (last year).
Is this Year Different with So Many People Being Down on the Direction of the Country?
Although, again, no one knows how 2024 will shake out, having a large number of Americans being unsatisfied with the direction of the country has tended to be a positive indicator for future stock market returns. When we look at consumer sentiment from 1979 to the end of 2023, we see that when more than 66% of families are unsatisfied, average market performance has been more positive for the following year compared to years when families have been more satisfied.
What About Federal Debt? Could That Derail Things?
Although not election related, this is another question that continues to come up. The short answer is likely that in the short-run, while our current federal debt levels are an issue that need to be addressed, but it’s not likely something that is going to blow things up right away. We can make this assumption based on interest rates compared to other developed economies…especially longer-term rates. If borrowers start to get worried about the US’s debt load, we’d likely see rates increase as we know that borrowers would need higher rates to justify the amount of risk borrowers might be willing to take. We have not seen this effect.
All that being said, we’ll likely need to solve this issue in the coming years. We know that to improve this picture over time, we'll need to do some or all of the following:
- Grow the economy more quickly
- Bring in more taxes
- Cut spending
The tax cuts that were passed under President Trump are set to expire in 2025. We find it interesting that you can see estimates on the following chart of if we were to continue these cuts or to let them expire and the effects on the national debt vs the size of the economy. More tax cuts typically lead to a higher deficit.
As we mentioned in our intro, click the links below for more detailed data. Keep in touch if you have any questions, feedback, or if we can help with anything. Happy Spring!
Further Reading:
Election Year Student of the Market
How Much Impact Does the President Have on Stocks?
U.S.General ElectionsChart Book