Power Up Wealth podcast – Investors Like Election Years – Episode 70 transcript:
Sharla Jessop 0:00
It’s an election year, and everybody wants to know what the impact is going to be, not only on the market, but on their nestegg. I’m Sharla Jessop, President of Smedley Financial and today, my guest and colleague, James Derrick, will share a new perspective on this topic.
Welcome to the SFS Power Up Wealth podcast where we provide impactful insight and expert opinions on timeless financial principles and timely investment topics, preparing you to make smarter decisions with your money.
James, thanks for joining me.
James Derrick 0:49
Thank you for having me.
Sharla Jessop 0:50
You bet. James is our Chief Investment Strategist at Smedley Financial Services, and he holds a CFA designation. James, this isn’t your first election year. We’ve been through a few election years together in the market, but you’ve done some research. What did you find fascinating about your research?
James Derrick 1:05
Well, because I’ve written on this topic so many times, I went looking for a new twist to the same story. And the reason why I did that is because, as I was looking at history, what I found was that election years are not as different as one might think. Common sense tells us that, because it’s an election year and a presidential election year at that. politicians will do whatever they can to get this economy moving as in the most positive direction they can, and the stock market too, and do everything that they can to get some some positive returns in the market so that people feel good and will reelect them or those in their party. And I think that’s just common sense that they would try to do that. When you start looking at the numbers, you find that the average return in the stock market over the last 100 years, in presidential election years is 7.8% which is approximately the same as any other year, so it’s not as different as we would think. Because the numbers weren’t as different as I expected, I chose to flip it around. And instead of saying, are presidential elections good for the stock market, I asked the question, is the stock market good for presidential elections? And that’s where I found a strong connection, and I decided to dive back into history and find the very best example I could of an election that was determined by the stock market.
Sharla Jessop 2:30
So why 1924?
James Derrick 2:31
Well, 1924 is exactly 100 years ago, and Calvin Coolidge was running for election. He’s he’s an interesting I want to say he was running for reelection because he was the president, but he actually was never elected. He’s, he’s one of eight vice presidents who became president after the death of the president, and in fact, he took the oath of office. It was administered by his dad at the family home in Vermont. So, kind of interesting. So he’s, he’s running in 1924 the stock market is incredible, and he wins. He gets 72% of the Electoral College. Easy win. I mean, there’s a reason that we call this time the Roaring 20s. The economy was was great. Consumers were spending like crazy. There were a lot of jobs available. All of this probably sounds a little familiar to what what we’re seeing right now, and the stock market was fantastic. So he easily won. Then over the next four years, everything continues. And so actually, no president has a higher average return in the stock market than Calvin Coolidge, and during those years when he was president, the stock market averaged 25% per year.
Sharla Jessop 3:44
I’ve just got to stop you for a second, because to me, that’s just a little bit mind boggling to think that for a four year period the average return was 25%.
James Derrick 3:53
Yeah, well, and that includes the time when he took over.
Sharla Jessop 3:56
So six years.
James Derrick 3:57
Right before, yeah, and so 25% it’s just a mind blowing amount on average, compounding as well. So it’s it’s quite incredible. And so then it’s no surprise then in 1928 Coolidge decides not to run again. He kind of feels like his half a term counted as a term, and he didn’t want to be present for three terms. And so he doesn’t run. But in 1928 the stock market gained 38% which is a really big number, like really, really big even for the market. And so the incumbent party then wins. And so this is President Hoover wins, and he gets 84% of the electoral college. So remember Calvin Coolidge got 72% Herbert Hoover got 84% this was the biggest landslide victory in US history so.
Sharla Jessop 4:02
Interesting.
James Derrick 4:13
Yeah, and it has everything to do with how the market did. The market is a better predictor of the election than the election is of the market.
Sharla Jessop 4:59
Do presidents then pump up the market. Is this something they do intentionally to be reelected?
James Derrick 5:05
This is another myth, and I think it persists because it just makes sense. I mean, like, if I were the president, like I would try to get the economy going, you know, for election, and they certainly try to talk it up. And we see that going on right now. There’s a big effort to try to convince people that the economy is fantastic right now, and people aren’t quite feeling it, but there’s an effort going on for that. When you dive into the numbers, though, it’s not happening like the budget has to go through Congress and get approved a year in advance. And what we see looking through those numbers is it just doesn’t happen. They don’t bump up spending significantly one year before. It doesn’t happen. And last year, we saw an example play out of what the government can do if they want to increase the economy, and that was because the debt ceiling didn’t go up. The government could not issue more debt, so they had to rely from January of 2023 to June of 2023 the government was spending down their checking account. They issued some debt, but that was just to pay off the old debt. There was no net new debt. And so about $750 billion was spent, and it acted like a stimulus to the economy. And so now fast forward to in the spring of 2024 and people wondered, well, would the US Treasury do the same thing again for the election? After all, the people in charge are political appointees. Would they do it again? And they announced the first week of May, no not only would they not be spending down their banking account to boost the economy, but they would actually be increasing it by $100 billion. So the target balance went from 750 billion to 850 billion. And why? Because that’s the amount they think they need on hand in case there’s an emergency. That’ll get them through seven days of spending.
Sharla Jessop 6:56
That’s a little mind boggling don’t you think spending 850 million?
James Derrick 7:00
Yeah. So anyway, it’s a lot of money, but the main point is, is that there’s only so much they can do to boost the economy, and they do what they can with their words. But when it comes to the actual spending and actions, the things that really, really matter, there’s not as much going on as one might think.
Sharla Jessop 7:18
As I’m listening to you, what I’m thinking is you’re telling us, really, the elections don’t really make a difference every four years in the market, and people really shouldn’t probably try to invest or time based on election or election outcomes.
James Derrick 7:31
Every four years when the election is getting close. I talk with somebody who wants to make a change to their investments because of the election, and inevitably they say, look, when it’s over, I’ll put things back. I’ve never seen that work out well for people, I think that it’s just too hard to anticipate what markets are going to do. My experience tells me that it’s better to just keep a level head. Everyone’s entitled to their own opinions, but just be careful letting that dictate what you do with your investments.
Sharla Jessop 8:02
Try to take the emotion out of investing, because I think it’s proven that time in the market is how you reach your financial goals, not trying to time the market.
James Derrick 8:11
Absolutely true. Now it’s possible that you get more volatility in an election year, so the downs might be a little bit steeper, the down weeks or down months, and maybe that will come in 2024 at some point, but then the market tends to recover again as the election nears. And it’s not when the election is over with like everyone thinks, but it usually begins to move up before the election. And so timing it is quite difficult. Just expect more ups and downs. As long as you’ve got those expectations, I think managing the emotions will be a little easier.
Sharla Jessop 8:46
Great advice. James, thank you for joining us.
James Derrick 8:49
Thank you.
Shane Thomas 8:54
Thank you for joining the Power Up Wealth podcast. Smedley Financial is located at 102 S 200 E Ste 100 in Salt Lake City, UT 84111. Call us today at 800-748-4788. You can also find us on the web at Smedleyfinancial.com, Facebook, Instagram, Twitter, and LinkedIn. The views expressed are Smedley Financials and should not be construed directly or indirectly as an offer to buy or sell any securities or services mentioned herein. Investing is subject to risks, including loss of principal invested. Past performance is not a guarantee of future results. No strategy can assure a profit nor protect against loss. Please note that individual situations can vary. Therefore, the information should only be relied upon when coordinated with individual professional advice. Securities offered through Osaic Wealth, Inc., member FINRA/SIPC. Investment advisory services offered through Smedley Financial Services, Inc.® Osaic Wealth is separately owned, and other entities and/or marketing names, products, or services referenced here are independent of Osaic Wealth.
Investors Like Election Years
