The long and grueling march toward the presidential election is almost over. Some time after Tuesday (hopefully within a day or two…) we will have a new president. What does this mean for the economy, stocks, interest rates, and bonds? Below, I will share our thoughts on this question along with provide a timely piece from our friends at Y Charts.
By the performance of the S&P 500 Index this year, one might think elections are good for stocks. On the other hand, by listening to the rhetoric of both political parties, one might think that the world will end if their opponent is elected.
Well, while stocks have gone up this year, it is less about the election and more about corporate earnings, consumer sentiment and the Federal Reserve. And, while the world will certainly end, it will not happen at the hands of either presidential candidate. I realize I still may not have convinced everyone about that last declarative statement….
So, what is going on with stocks and what does KIG believe will happen to the markets following the election? Having been a professional in this industry for over 32 years, I have opinions but no guarantees. Guarantees pertaining to the stock market only come after the fact and even then, they should be taken with a grain of salt.
We remain firmly in a secular bull market that has several years to run before we expect it to end. There will be “air pockets” along the way but we continue to see a bright future for the economy in general and stocks in particular. The driving force behind this bull market is Artificial Intelligence. This technology will help drive productivity levels to heights not seen since the advent of the Internet, Interstate, Intercontinental Flight, Intercontinental Railroad and maybe even the printing press.
The point is the economy is in a growth phase that will not be derailed by either presidential candidate. Sure, there will be impacts made by their policies, but these will be felt at the margin and should not derail the secular bull market. The end of the bull market is coming but we do not expect to see this until 2032 or so. Until then, stocks in well-managed, innovative, and financially strong companies should deliver solid results for investors.
The underpinnings of the economy remain strong and unlike during the Great Financial Crisis or the Great Depression. Stock valuations during the Internet Bubble were materially higher than they are today, not to mention corporate cash levels dwarf those during the late 90’s.
Regarding the comparison between prominent companies of the late 90’s to today, let us look at three that are as important today as they were then, Apple, Amazon and Microsoft. In 1999, Apple had $1.5 billion in cash, Microsoft had $4.7 billion in cash while Amazon had $133 million in cash. Today, those same companies respectively have $25.5 billion, $18.3 billion, and $71.1 billion in cash.
This is just one comparison but there are many more we could analyze. The point is that we see reasons to be bullish on the economy and stocks despite the election. We remain grounded by our experiences from the past. After all, Past Performance Does Not Predict Future Results. Additionally, there were significant selloffs that occurred during the run-up to the Internet Bubble bursting, and we expect similar events ahead. However, we believe more investment return will be lost by trying to avoid these “air pockets” than simply remaining patient through them.
We hope you find the attached study on the election informative and interesting. We appreciate your business here at Kessler Investment Group, LLC and encourage our clients and friends to get out and vote for their selected candidate.
Sincerely,
Kessler Investment Group, LLC
All information in this presentation is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. All economic performance data is historical and not indicative of future results. The market indices discussed are unmanaged. Investors cannot invest in unmanaged indices. Certain statements contained within are forward looking statements including, but not limited to, statements that are predictions of or indicate future events, trends, plans or objectives. Undue reliance should not be placed on such statements because, by their nature, they are subject to known and unknown risks and uncertainties. Please consult your adviser for further information.
Opinions shared in this presentation are not intended to provide specific advice and should not be construed as recommendations for any individual. Please remember that investment decisions should be based on an individual’s goals, time horizon, and tolerance for risk.