Gatewood Investment Committee
Christopher Arends, CFA®, CMT®, CAIA®
Aaron Tuttle, CFA®, CFP®, CLU®, ChFC®
Jerry Pan, MSA
Calvin Racy
INTRODUCTION
If you've followed politics for any length of time, you’ve heard it all before: “This is the most important election in history.” Or, “It’s different this time.” These phrases are part of the cycle, resurfacing every few years. Just last week, our preferred custodian, LPL Financial, echoed the sentiment with a blog titled "This Time Will Be Different."
Maybe they’ll be correct, but we doubt it.
POLICY SHIFTS & MARKET RESILIENCE
Yes, policy changes are inevitable. If the Democrats have a strong showing, we will see higher taxes. Their proposals mostly fall within the historical range for tax brackets and aren’t entirely new for markets or taxpayers. Sure, higher taxes will pressure corporate profits, but resilient companies have shown they can weather these shifts and generate growth.
Consider Alphabet (Google’s parent company), which reported 15% revenue growth last week. Democrats often push for breaking up Big Tech over anti-trust concerns, while Republicans challenge their censorship policies. However, Alphabet remains resilient, growing profits and making prudent investments regardless of which party is in power. Strong businesses can navigate through regulatory pressures and continue to reward shareholders.
WHAT CAN WE EXPECT?
Markets dislike uncertainty, and the weeks leading up to an election often bring plenty of it. Historically, election years bring October volatility as markets brace for uncertainty, frequently followed by a rebound in November and December when outcomes become increasingly certain.
In the short term, we may see markets react by favoring specific market factors, such as certain Sectors (Financials vs. Technology), Size (Large vs. Small Cap), or Geographies (Domestic vs. International Developed and Emerging Markets), depending on the anticipated policy impacts of the winning party. In the long term, politics will be noisy, and allocating to good businesses at a fair price has always won.
FINAL TAKEAWAY: HISTORICAL MARKEY TRENDS & OPPORTUNITY
We’ve been showing election slides all year, and here’s the recurring theme: markets tend to rise over time, regardless of whether a Democrat or Republican is in the White House. Gridlock, which remains a probable outcome, has been the preferred outcome for stock market returns. In any case, opportunities will exist under all outcomes. Regardless of the outcome, we’re always prepared to identify and act on those opportunities. We’ll close with perspective from Dave Ramsey “What happens at your house is a whole lot more important than what happens in the White House.”
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. Investing involves risk including loss of principal. No strategy assures success or protects against loss. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.