2019 Third Quarter
You know the story: The stock market has been growing for the past decade and it is “due” for a significant drop in the next couple of years. Ms. Sarah Newcomb of Morningstar challenges us on this topic. She compares the argument that we are “due” for a correction to someone gambling in say, Las Vegas, at a roulette wheel. If the ball ends up landing in the “red” slot nine times in a row, you might say that it is “due” to land in the black slot. However, we all know that roulette is not dependent upon previous spins; there is a 50% chance of red and 50% chance of black with every spin. The same can be said for the stock market. Thus, we need to be careful when we say that the market is bound to correct simply because we are “due” for a market drop. Rather we should continue to concentrate on stock market fundamentals like changing economic conditions and underlying corporate earnings.
Over the past few months much has been written about a possible impeachment of President Trump. If you are concerned about your portfolio’s return at the conclusion of an impeachment or concerned about the outcome of an election, I would argue that you should not be as the stock market seems to be politically agnostic. Here is what I mean: If you were to rank the top four presidents with the best annual returns during their presidency who would you select? Ronald Reagan and John Kennedy? Perhaps George H.W. Bush? The top four presidential average annual returns for the stock market (based on S&P 500 without dividends after Hoover; Dow Jones Industrial Average for everyone earlier) are as follows:
Best Returns: Worst Returns:
1) Calvin Coolidge (R) at +25.5% 1) Herbert Hoover (R) at -30.8%
2) Bill Clinton (D) +15.2% 2) George W. Bush (R) at -6.2%
3) Barack Obama (D) +13.8% 3) Grover Cleveland (D) – First Term at -4.9%
4) William McKinley (R) +11.3%. 4) Richard Nixon (R) at -4.1%
Obviously, Trump has not completed his first term as president, but from the time of President Trump’s inauguration through 09/30/19, the stock market is up 30% or 11.40% per year.
The moral of the story is to check your emotions at the door when investing in the stock market. Don’t think that just because the stock market has been in a bull market for years and years that it must go down (unless the underlying fundamentals start to deteriorate). Likewise, don’t assume a change in the presidency will have a long-term impact on the economy or stock market. The trade war with China continues to hang over this market like a dark, rainy cloud. I do not believe you can trust anything that is said until an agreement is signed. Let’s hope China and the U.S. can conclude their differences soon.