There was an election yesterday as I am sure you are all aware. The soul of the nation hangs in the balance. It is the most important election since the last election. The outcome is going to have far reaching implications. I am being sarcastic. The drama around elections has become so built up that I find it hard to tune out, but that is exactly what needs to be done, especially as investors. Let’s do a quick recap:
In 2016, we were told that there was no way that Donald Trump could beat Hillary Clinton but if he somehow pulled off a miracle, the market would crash. From the night of the election on November 8, 2016 until January 25, 2018, the S&P 500 rallied (not crashed) by 33% without much in the way of counter-trend moves to the downside.
What about the last election? The Presidential election of 2020? The President, himself, told us all that if Vice President Biden won that the market was going to crash. Since the close of trading on November 3, 2020, the S&P 500 is up (not down) by 11%. I have heard stories of people who were going to take "all” their money out of the market because VP Biden won. I just shake my head and follow the trends.
So now we have the run-off in Georgia for two Senate seats. A blue wave on the part of the Democrats will surely be bad for the market, at least that’s what I am told. Our taxes are going to go, spending will be out of control and our kids will have no future because of all the debt that will heaped upon us.
First of all, we already have heaps of debt on us as a country, this would not be a new development if it were to come to fruition. Next, taxes. I am not a tax expert so no opinions here. But lets a take a look at what happened in November. This is a good read from Business Insider with a good graphic.
The Republicans picked up 11 seats in the House. On a night when they had their dream come true (beating DJT), the Democrats had a pretty dismal showing in many other elections (caveat here and now: this is in no way a political statement or an expression of my political views, these are facts).
Now, here is my opinion: Even if the Democrats were to win both seats, they are not going to have a large enough majority to pass anything extreme when it comes to large tax increases and unfettered spending. I think that the message of the population on election night was that “we don’t want extremes…in either direction.” If this assessment is true, I have to think that that is a bullish set up for the equity market.
Might there be tax increases? Yes. Might there be spending and further stimulus? Probably. Are these reasons to dump it all and sit on cash. I don’t think so. But, I am in the inflation camp, so I view having any more cash than what is needed to make it so you can sleep at night (this is different for all of us) is a bad idea.
By the way, more spending and stimulus will likely lead to more inflation. This could be playing out as the economy continues to improve. Yesterday’s data (Manufacturing PMI) showed an eighth consecutive month of expansion, taking us back to the highs seen in the 2018.
The election will come and go and the trends in the market will persist. There will be areas to invest in regardless of the outcome. Finding those areas is a more productive use of time than worrying about the outcome…again, this is my opinion.
PS: While I am not a believer enough to have it change my opinions, the Santa Claus Rally Window closed yesterday and was positive…make of it what you will.