In Focus: New Regime, New Money
Joe Biden and Kamala Harris have been elected to be the next president and vice president of the United States. That may make you very happy, very sad, or somewhere in between, but whatever the feeling, stay focused, it's still about your money. At the end of Biden and Harris' term, whether it be four years or eight, big money will be made by a small few. Being too caught up in your emotions will cause you to miss this train, so check yourself and get ready.
A Part of the Economy, but not THE Economy
The stock market is a component of the economy, and for a sitting president to know where it is and what it's doing makes sense. The Trump administration used the stock market as their report card, and because of that some people associate a strong market with Trump. But an investor would be costing themselves big money if they were to believe that the markets only move up big when a Republican is in office.
It's true that each president and each party will prioritize a particular sector, industry, or cause over others skewing market gains towards the prioritized sector, industry, or cause.
Barack Obama was considered a green president, so it made sense that the Obama administration loaned a struggling Tesla $465 million in 2009. A year later Tesla would go public, and since then Tesla has created a tremendous amount of wealth for Elon Musk believers.
Despite what you saw in the political commercials leading up to the election, the stock markets are bigger than one man or woman, and sometimes bigger than multiple issues.
Below is a list of problems foreign and domestic that the stock market was processing in late 2018. Any combination of these events could have set off a major recession or stagnation in the markets. Instead, what we saw was a market selloff to end 2018 followed by a year long market rally in 2019 that bled into early 2020.
Rising interest rates that could make borrowing more expensive
A slowdown in global economic growth exemplified in China weakness
An overall breakdown in stocks, represented in equities trading at multi month lows
Midterm election jitters, which have seasonally resulted in some jitters in U.S. markets
Seasonal October volatility, which has tended to translate into choppy trade
Worries that the U.S. economy is in the late stages of its expansion and due for a recession
Italy’s budget crisis
The looming end of quantitative easing in Europe
The political implications of the killing of dissident journalist Jamal Khashoggi
Worries about the health of emerging markets outside of China.
Signs from U.S. companies that they are see earnings growth slowing
U.S.-China trade relations which may be exacerbating Beijing’s economic malaise
Growing deficits partly derived from President Donald Trump’s corporate tax cuts in 2017
Weakness in the banking sector which hasn’t benefited from rising interest rates
Softness in transports which Dow theorists tend to follow as a gauge of the health of the market
A rotation of investors out of growth stocks and into those names viewed as value
Major cracks in the housing market
A weak earnings outlook
The issues on the list didn't resolve themselves by 2019 either, the markets just didn't care. Investors saw that there was value to be bought after the late 2018 sell off, and they bought big.
During the U.S. - China trade war, what I saw was Wall Street analysts downgrading companies based on their exposure to China, then those companies adjusting their earnings outlook due to their exposure to China and the trade war, and then Wall Street celebrating after those companies beat their recently adjusted earnings expectations. Wall Street and serious investors adjusted to the new environment.
Past Presidents and the Markets
George H.W. Bush, a Republican, whose term as president consisted of America's war with Iraq and a pre election promise of no new taxes. However, the national deficit left by the Regan administration left Bush with no choice but to raise taxes. Still, the S&P 500 increased more than 50% in his four years in office.
Bill Clinton, a Democrat, had the great pleasure of being the president in office when the internet took off. The S&P 500 increased by more than 200% from January 1993 to January 2001.
George W. Bush, a Republican, encountered more issues than he had bargained for under his presidency.
Bush took over the country as former president Clinton's hot internet market was beginning to fizzle. As the country was trying to figure out the fall out from overvalued dotcom companies, 9/11 occured striking another blow to the economy. G.W. didn't really help himself by going to war in Afghanistan and Iraq.
At the end of G.W. Bush's eight years, the country and the rest of the world was entering the Great Recession. All-in-all the S&P 500 lost 40% under George W. Bush, but that number comes with an asterisk, because the fall out from the dotcom bubble wasn't his doing. And from the bottoming out of the S&P 500 following the dotcom