Election Time

With the election (hopefully) being over next week, we thought a few minutes spent looking back at the impact of previous presidential elections on the stock market’s returns might be helpful.

Below is a chart showing the return of the S&P 500 since 1926. The red areas represent a Republican presidency and the blue Democratic.

Source: Dimensional Advisors

As the chart shows, the growth of companies in the stock market has not been tied to a particular presidential party.

Unfortunately, neither of the presidential candidates seem to want to talk about an issue that many of us are concerned with, which is the big and growing government deficit. With interest costs on the debt increasing, the chart below shows that we are now spending more on interest than on national defense.

Source: U.S. Treasury

The bond market is taking notice of this. The growing amount of bonds and bills that will have to be issued to continue to finance the deficit is becoming a bigger concern with bond market participants.

At what future interest rate level will the bond buyers (lenders) demand from the Treasury remains to be seen. But as we talked about in the last newsletter, since the Fed cut short-term rates, the 10-year Treasury yield has increased by 70 basis points (.7%) as of October 29.

The option of decreasing very popular entitlement programs such as Social Security, Medicare, Medicaid, Welfare etc. is not something politicians like to talk to their constituents about. But it is obvious at some point these spending programs will have to change to avoid a serious issue with inflation and our debt.

For now, we are in the middle of corporate earnings season and earnings have been good and the stock market is reflecting these earnings.

We will be in touch but please in the interim, don’t hesitate to call us.

As always, thank you for your trust and confidence in us.

Beach

Disclosure:  The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee that it is accurate or complete, it is not a statement of all available data necessary for making an investment decision, and it does not constitute a recommendation. Any opinions are those of the author and not necessarily those of Raymond James. The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market.