Posted By By Dale Roberts, Cutthecrapinvesting
Special to the Financial Independence Hub
What else could we write about? The news and stock market news and social media was just swamped with election fever and fervour. Yes the elections in the US stole the spotlight. There was not much light left for any other topic. And election predictions were everywhere. The predictions mostly got it right as they also got it wrong. The stock markets predicted the US election outcome. But there was certainly no massive Democratic (blue wave) as had been predicted by many pollsters.
The US stock market has a very good record of predicting US presidential election outcomes. Since World War II, the stock market has predicted the outcome 88% of the time. That record just improved as US stocks (the S&P 500) predicted a Joe Biden victory.
As I had offered in my weekly MoneySense column …
… when the S&P 500 fell in the three months leading up to the November vote during a presidential election year, the incumbent president or party of the outgoing president has lost the election
As the political sayin’ goes …
It’s the economy stupid.
And in 2020 another global event played into that narrative …
It’s the pandemic stupid.
And certainly those two events are connected; the pandemic killed the economy.
Related post: How does the pandemic end? With a cold.
The stock markets also cheered the election
It appeared that the stock markets also found or looked for any reason to embrace the election, coming and going. The markets offered generous gains on Tuesday (election day) and then the gains continued throughout the week.
From this CNBC post …
Despite the uncertainty around the presidential vote, Wall Street notched its best weekly performance since April. The S&P 500 and Nasdaq jumped 7.3% and 9%, respectively, for the week. The Dow rose 6.9% this week. The S&P 500 also posted its biggest election week gain since 1932.
And here’s a table that frames it all quite nicely …
Stock markets like a divided house
The stock markets now appear to like the likelihood of the status quo with respect to control of the Senate and the House of Representatives. From that CNBC post …
“The market is just getting more comfortable with the outcome of a divided government, where we see a continuation of political gridlock [and] no meaningful changes on tax policy,” said Dan Eye, head of asset allocation and equity research at Fort Pitt Capital Group.
And also, the stock markets historically like a divided house where one party controls the Senate and the other party controls the House. From Yardeni research and a Globe and Mail article …
For numbers going back to 1933, when Franklin D. Roosevelt won the presidency, the researchers found that divided periods generated the biggest gains for the S&P 500: 60-per-cent gains, on average, over periods that stretched as long as 12 years.
That beats the average gain of 56 per cent during periods of Democratic control and 35 per cent during relatively brief periods of Republican control.
Of course, there’s nothing we can to about ‘all of the above’. We cannot control the elections, and we cannot control the actions of elected leaders. We need to stick to our investment plan. Be prepared for continued volatility and remember that lower prices are great for the portfolio for those in the accumulation stage. Those in retirement or approaching retirement should have a more defensive stance.
But moving forward under a Democratic and Joe Biden (and Kamala Harris) administration, relations between the US and Canada should normalize and warm considerably. It’s likely possible that the US and China will also tone down the trade war and tariff rhetoric and actions.
Of course I wish the US and our American readership all the best in 2020 and beyond. It is still the greatest friendship and trading arrangement on the planet. I look forward to the day when our shared border is reopened.
Pot stocks love Joe Biden
One last interesting observation: pot stocks lit up on the news of a Joe Biden presidency. Many feel that Joe will be a cannabis-friendly President. Smoke ’em if you got ’em, Aurora Cannabis surged by a spectacular 55.8%; Cronos Group gained about 16% and Canopy Growth 10%.
I mentioned investing in Horizons cannabis ETFs back in March of 2019. I had suggested that with virtually no profits for the sector, it was closer to speculation than investing. That said, there is certainly great potential for the sector. For the week Horizons Marijuana Life Sciences ETF was up 27%. Wow.
I’ll wait for the profits.
Dale Roberts is the Chief Disruptor at cutthecrapinvesting.com. A former ad guy and investment advisor, Dale now helps Canadians say goodbye to paying some of the highest investment fees in the world. This blog originally appeared on Dale’s site on Nov. 8, 2020 and is republished on the Hub with his permission.
