Weekly Market Digest: What Impact Do Elections Have on the Market?

Thawing trade tensions following constructive talks at the G20 meeting over the weekend pushed stocks higher. President Trump agreed to hold off on additional tariffs while the countries continue to negotiate and also allowed US companies to begin supplying products and services to Huawei. A strong jobs report issued Friday tempered enthusiasm by calling expected Fed rate cuts into question.

Weekly Returns

S&P 500: 2,990 (+1.6%)
FTSE All-World ex-US (VEU): (+0.6%)
US 10 Year Treasury Yield: 2.04% (+0.03)
Gold: $1,399 (-0.8%)
EUR/USD: $1.123 (-1.2%)

Major Events

  • Monday – Semiconductor stocks let gains as investors viewed the weekend meeting between presidents Trump and Xi positively.
  • Monday – Weatherford International, one of the world’s largest oil-field services companies, filed for bankruptcy as producers have cut back on expenditures.
  • Tuesday – The current US economic expansion became the longest in history according to the National Bureau of Economic Research, though absolute growth has been modest compared to others.
  • Wednesday – Tesla said it delivered 95,200 vehicles in the second quarter. Shares rose.
  • Wednesday – Iran said it would enrich uranium beyond limits set in the 2015 agreement and also restart work on a plutonium reactor complex.
  • Friday – The US added more jobs than expected in June, calling into question an expected rate cut in July. Bonds and gold prices fell.

Our Take

The impact of US political elections on stocks is routinely overestimated. Historically, there is little difference in return based on which party controls the White House or Congress. But politics stoke emotion, and the 2020 election will be more emotional than most. So we think it can be a good idea for many to start planning now to condition themselves to avoid making emotional decisions around elections next year.

The normal pattern in any Presidential campaign is to begin with fairly extreme views to win the party nomination and then rush to the center for the actual general election. This time will be no different, but it does feel that many early leaders on the Democratic side are venturing farther left than usual on issues such as health care and energy. At some point it can be hard to come back close enough to the center. President Trump probably likes what he sees so far in the debates.

But it is very early, and we can’t know yet who will win the nomination or what the economy will look like 16 months from now. From a purely investment perspective, we think it is best to focus on controlling what can be controlled and not worrying much about politics. Despite the seeming dysfunction in Washington at times, the system actually works pretty well at allowing capitalism to do its thing. By some measures, we’re currently enjoying the longest economic expansion on record, one that has seen both Democrats and Republicans as President and also in control of both the House and the Senate. We hope you had a great 4th of July and enjoy the weekend.

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