It’s your Tomorrow
Ruth Bader Ginsburg - From the book: Notorious R.B.G.: The Life and Times of Ruth Bader Ginsburg
Make future plans, don't dream about yesterday, hey
C'mon turn, turn this thing around
Right now, hey
It's your tomorrow
Right now,
C'mon, it's everything
The great thing about investment success is that it’s within our control. It’s not dependent on a political party or a president. Build a financial plan, be disciplined about saving, stay invested for the long term, remain diversified, and occasionally rebalance. Regardless of who wins tomorrow (and we may not know for days) our economy is projected to grow above trend next year due to vaccines, more government stimulus, and a Federal Reserve who will continue to stimulate the economy to get more Americans back to work.
Since 1927, the stock market has risen on average, 5.3% six months following election night, and climbs 7.7% one year later. Of course, first we must first get past the election. We are not surprised by recent volatility in the stock market. Covid infections are on the rise, a lack of further government stimulus, and the uncertainty around the election. However, looking ahead to 2021, we intend to take advantage of lower prices should we get them in the wake of the election. As I highlighted in my last letter (Scientists Will Save Us), presidents have very little impact on the stock market. Frankly, they get too much credit and too much blame. Clinton's extraordinary economic record can be credited to Bill Gates and the tech revolution he ignited in the 90’s. If you refrained from investing because you disagreed with Trump’s policies, you missed out on a 50% return over the past 4 years, the tech sector has climbed 150%. Our portfolios are more impacted by the overall economy, interest rates, and our own behavior. I am certainly not downplaying the anxiety many of us are experiencing, it is well warranted, there is much at stake on election night.
Never in my 29 years of managing portfolios have I ever witnessed a major Wall Street firm claim that a Democratic sweep would be great for the economy. In a note titled 'Thinking of a Blue Wave', Goldman Sachs chief economist Jan Hatzius stated the following:
“All else equal, such a blue wave would likely prompt us to upgrade our forecasts…it would sharply raise the probability of a fiscal stimulus package of at least $2 trillion shortly after the presidential inauguration on January 20, followed by longer term spending increases on infrastructure, climate, health care and education that would at least match the likely longer term tax increases on corporations and upper-income earners.”
The Covid crash took the stock market down 34% in 22 trading days. It is no coincidence that the market began a rapid recovery on March 24th, one day after the Federal Reserve bank announced extraordinary measures to support our economy. The Federal Reserve has 2 jobs: maintain stable prices (control inflation) and maximum employment. Today the unemployment rate is nearly 8% (it was 3.5% pre-Covid). The Federal Reserve will continue to do all it can to stimulate the economy for job growth. This bodes well for 2021.
“In the 13 previous instances of tax increases since 1950, the S&P 500…has shown higher average returns, and higher odds of an advance, in times when taxes are increasing…” --Denise Chisholm, Fidelity Strategist
On September 14th, Pfizer CEO Dr Bourla appeared in a televised interview on CBS News to discuss his company’s progress on a Covid-19 vaccine. He expects EUA (emergency use authorization) for their vaccine by the end of the year. They’re already in phase 3 drug trials with 30,000 patients. Pfizer was created by German American scientist Charles Pfizer in Brooklyn in 1849. They have generated $49 billion in revenue over the past year. Their top selling drug is the Prevnar vaccine given to millions of babies and children every year to prevent the infection that leads to strep and pneumonia. So yes, I will gladly take the Pfizer vaccine if it is approved. Pfizer is the only US pharmaceutical company to not take US government taxpayer money for vaccine development. Dr Bourla stated, ‘I wanted to keep Pfizer out of politics.’
“I’m a monetary theorist. This is what I teach and study. This is unprecedented in 75 years, since World War II…once the vaccine and the pandemic fears fade in 2021, we’re going to see a big boost in activity.” --Jeremy Siegel, Wharton School Professor
Markets trend higher, regardless of who is president:
One of the few bright spots this year is the performance of clean energy. The sector has crushed the overall stock market, up more than 60% this year. Thanks in large part to millennials, who do not debate the science of the climate crisis. Another interesting opportunity is cannabis. Again, there is already been a huge societal shift, medical marijuana is legal in 34 states (according to WebMD). Morningstar recently called cannabis stocks their top investing trend for 2030. I suspect that cities and states need the tax revenue due to the massive budget hole caused by the pandemic. And lastly, as the economy opens next year, we expect leisure travel to rebound. Whether we get a ‘blue wave’ or not we intend to add to our existing positions in clean energy, cannabis, and travel.
As the election nears, tensions will be elevated. Do not get sucked into the vitriol highlighted in the media and online. Half the country doesn’t feel the same as you, and that’s ok. We are far more similar to each other than different. Instead of vilifying them, put that energy to a cause that resonates with you: equality, climate, hunger, voter suppression, etc.
"Fight for the things that you care about, but do it in a way that will lead others to join you."
-Ruth Bader Ginsburg
We are here for you and happy to discuss further.
Thank you!
-randy