The digitization of everything brought plenty of benefits for investors. If you would like to know the balance in your account, you login online in about five seconds. No more waiting for the mailman to arrive with your quarterly statement. Buying and selling stocks has been reduced to the touch of a button. And they’re wrapped in neat packages called ETFs. People used to make hand signals and trade slips of paper representing shares of company stock. But the transition from physical to digital trading and recordkeeping has all but severed the mental connection between what the numbers on the screen are and what they represent.
If you own ten shares of Apple (currently trading around $224/share), you can characterize your account in one of two ways. Most say “I have $2,240 in my investment account.” Few say, “I own ten of the ~15.2 billion outstanding shares of Apple, roughly 0.000000066% of the company.” Both are accurate characterizations, but the former describes the fair market value of the thing, while the latter describes the thing itself. The digitization of investing further shifted investors’ focus from the things they own to the fair market value at this moment of the things they own. This is not without consequence.
The effects manifest themselves every election season. Investors read the news and see fluctuations in their account values and naturally draw a causal link. They worry about the impact of the election on their portfolios. “I’m worried about what happens to the market if x wins the presidency, or if y party wins the Senate.” These concerns are inflamed by the media, whose business model exploits their audience’s emotions, of which fear is the most powerful. Investors are focused on the fair market value of the things they own in their portfolio rather than the things themselves. It is easy to rile people up about the impact of President Harris or President Trump on the stock market. It is much more difficult to explain how Harris or Trump will keep Apple or Nvidia or Wal Mart or any other company from minting profits each quarter. The truth is the office of the presidency has essentially no power to keep successful companies from making money. We call those companies collectively “the stock market,” which is positive three of every four years and in the long run has averaged an annual return of roughly 10%.[i] If you doubt the President’s inability to hinder corporate success, please read this and be sure not to gloss over the first two charts.
Nevertheless, it is election season. The right fears a communist takeover. The left fears a fascist takeover. The right believes the billionaires and mega-companies are regulation-loving, small business-destroyers who have undue influence over US politics and the economy. The left believes the billionaires and mega-companies are all tax-cut loving right-wingers who have undue influence over US politics and the economy. Interestingly, the people on each of these extremes agree the wealthy and powerful exercise inordinate influence over politics and the economy. Well ok! If that is true, will they allow for a system that hinders their ability to keep making money for their shareholders (read: themselves and you, a fellow shareholder)? If that is not true, if the billionaires and the giant companies really don’t have much political clout, how will they respond to a communist or fascist takeover of the country? They will move their business to whatever jurisdiction overseas is most conducive to their ability to grow earnings and make money for their shareholders (you). Sweden or Seychelles or El Salvador or wherever.
It won’t make a difference to you as a shareholder of the company – they will continue minting profits of which you will continue to own a share.
Unless you sell…
Political turmoil has historically left the stock market unfazed. The day after JFK was assassination the S&P 500… rose 4%.[ii]Five years later it had risen 52%. As of this writing it has risen over 7,920%.[iii] 2020 was a contentious election – everyone went to bed without knowing the winner. The next day the S&P 500… rose 2.2%.[iv]Since then it’s up 75%.[v]
Can the president’s policy have positive impacts for some companies and negative impacts for others? Sure, but anticipating the net effect on stocks is impossible. A reasonable theory eight years ago was a Republican administration is bad for electric vehicle stocks and good for oil stocks (drill, baby, drill), and a Democratic administration is good for electric vehicle stocks and bad for oil stocks. Here is Tesla stock and the XOP ETF (which tracks an index derived from the oil and gas exploration and production segment of the US stock market) during Trump and Biden’s administrations:[vi]
Trump
- Tesla: +1,640%
- XOP: -55%
Biden
- Tesla: -23%
- XOP: +123%
A reasonable proposition, yet anyone who invested on the theory got absolutely hosed.
The entire media apparatus salivates this season every four years. Ratings and ad revenue skyrockets - they’re incentivized to terrify you and they’ll laugh all the way to the bank while they do so.
Don’t let them.
Sean Cawley, CFP®
Neither asset allocation nor diversification guarantee against investment loss. All investments and investment strategies involve risk, including loss of principal.
Content here is for illustrative and educational purposes only. It is not legal, tax, or individualized financial advice; nor is it a recommendation to buy, sell, or hold any specific security, or engage in any specific trading strategy. Results will vary. Past performance is no indication of future results or success. Market conditions change continuously.
This commentary reflects the personal opinions, viewpoints, and analyses of Resolute Wealth Management. It does not necessarily represent those of RFG Advisory, clients, or employees. This commentary should be regarded as a description of advisory services provided by Resolute Wealth Management or RFG Advisory, or performance returns of any client. The views reflected in the commentary are subject to change at any time without notice.
[i]https://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/histretSP.html
[ii] YCharts, ^SPX Historical Level Data.
[iii] YCharts, Fundamental Charts, Level, ^SPX, 11/22/1963 – 11/21/1967 & 11/22/1963 – 08/19/2024 (present).
[iv] YCharts, ^SPX Historical Level Data.
[v] YCharts, Fundamental Charts, Total Return Level, ^SPX, 11/03/2020 – 08/19/2024 (present).
[vi] YCharts, Fundamental Charts, Total Return Level, TSLA/XOP. Trump dates: 01/20/2017 – 01/20/2021. Biden dates: 01/21/2021 – 08/19/2024 (present).