Rarely in our nation’s history have political views been more polarized – or more toxic.
Political differences are inevitable, of course. But it’s a mistake to turn bullish or bearish on the market based on which party is in power or who’s in the White House.
During the Obama years, for instance, I had several conservative friends who shunned stocks because of their strenuous opposition to Obama’s policies on taxes, spending, regulations, healthcare, and debt.
I opposed many of these Obama policies myself. But it didn’t affect my view of the market.
Good thing. During Obama’s two terms, the S&P 500 Index returned 235%. (And our Oxford Club portfolios did far better.)
And President Trump served through a rip-roaring bull market – one that was dealing with a pandemic at the time.
Yet I have a number of progressive friends who missed the train entirely.
Many point to what their favorite political pundits were saying before and after the 2016 election.
In June of that year, for instance, former Clinton Treasury Secretary and Obama chief economist Larry Summers said, “Under Trump, I would expect a protracted recession… The damage would be felt far beyond the United States.”
In The New York Times just before the election, MIT economics professor Simon Johnson heartily agreed, “Trump would likely cause the stock market to crash and plunge the world into recession.”
Obama’s former auto czar Steve Rattner said, “[If] Trump wins you will see a market crash of historic proportions… The markets are terrified of him.”
Not to be outdone, the day after the election, New York Times columnist Paul Krugman wrote, “It really does now look like President Donald J. Trump, and markets are plunging. When might we expect them to recover? … A first-pass answer is never. … So we are very probably looking at a global recession, with no end in sight.”
You’ve gotta love that – a Nobel Prize-winning economist who foresaw a downturn with no end in sight and markets that would “never” recover. (Krugman may be the nation’s most obvious and unsympathetic propagandist.)
I’m not faulting these men for getting the economy and financial markets completely wrong. (Although, let’s face it… they did.) I’m faulting them for letting their political views override their good sense.
Speaking of which, President Trump might be careful about hogging the credit for the rally he experienced during his tenure. For one thing, stocks can get thrown into reverse in an eye blink.
For another, while it’s true that Trump’s tax cuts and deregulatory policies were good for hiring, wages and capital spending, presidents have limited influence over the business cycle.
Far more potent are inflation, interest rates, Fed policy, energy prices, currency fluctuations, worker productivity, consumer confidence, and corporate earnings.
No matter. Voters will credit or blame the sitting president for the economy’s performance.
(Recall George H.W. Bush’s rapid fall from a 90% approval rating following the Gulf War to an ignominious loss to the upstart from Arkansas, thanks to a tepid economy.)
Look back through history, and you’ll see stocks have delivered exceptional returns under both Republican and Democratic administrations.
The S&P 500 returned 12.4% annually under Carter, 15.1% under Reagan, 15.5% under Eisenhower, 15.6% under Ford, 16.3% under Obama and 17.5% under Clinton.
Only time will reveal the future president’s legacy. Meanwhile, don’t let your political views – whatever they may be – turn you away from the market.
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