Investments

Investing Through the Political Static

Once again, we circle back to the great quadrennial flood of election coverage. Though much of this process is old news, there certainly are new developments in the 2016 edition. Both major primaries have been heavily influenced by self-described outsiders set to take on political establishment. In an attempt to review what is certain, it seems the only known quantity is uncertainty.

In late May of last year, the Quinnipiac University Poll had Hillary Clinton with a 42 point advantage over second place Bernie Sanders on one side and a four-way tie between Marco Rubio, Ben Carson, Jeb Bush and Mike Huckabee on the other side. Donald Trump sat on the fringes in 7th place. Fast forward a year and we have Trump as the Republican nominee while Hillary Clinton is still in the process of cementing her party’s base.

Likely policy implementation is no less ambiguous. Though each candidate has made strong stands on certain topics, each has also left room for negotiation. We must also consider that messages may become more centrist as we move past primary season and towards the general election. This may offer interesting shifts in the binary ideologies of recent elections. The current republican nominee has come to represent a protectionist tilt while the democratic nominee will be tasked with convincing previously uncommitted voters to join her from both the Bernie Sanders camp and the establishment centrist crowd. Meanwhile, rumors still persist of a possible well-funded third party entry.

Policy is of course where we may be able to glean the most relevant information for the economy and markets, but it is also hard to predict the likelihood of policy implementation given a president’s reliance on a supportive congress. According to research from Bloomberg and Goldman Sachs Asset Management (GSAM), from 1947 through 2015, the S&P 500 has averaged an annual price return of between 9 and 14% under a democratic president depending on the tilt of congress. Over the same time period, the S&P 500 averaged an annual price return of anywhere from -1 to 15% under a republican president depending on the makeup of congress. As intriguing as this seems at face value, when you go under the hood to evaluate the consistency of these patterns, you quickly realize that the numbers are little more than random. GSAM’s statistical regression of the data reveals that president and congressional party have little, if any, predictive capability in regards to S&P 500 returns. Correlations between the party in power and market returns are universally low.

So what are we to garner from this acknowledgment of unpredictability? It is undoubtedly unpleasant for stock markets that thrive on confidence and certainty. Perhaps the upshot it is to focus on what we can control. We will continually review any regulatory and legislative impacts on capital market assumptions, but just as importantly, financial planning, risk management, tax strategy implementation, investment diversification and a long-term focus will all be vital components of successful wealth governance through the coming election and into the future.

Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Altavista Wealth Management, Inc. (“Altavista”), or any non-investment related content, made reference to directly or indirectly in this newsletter will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this article serves as the receipt of, or as a substitute for, personalized investment advice from Altavista. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. Altavista is neither a law firm nor a certified public accounting firm and no portion of the article content should be construed as legal or accounting advice. A copy of Altavista’s current written disclosure Brochure discussing our advisory services and fees is available upon request.

Please Note: If you are an Altavista client, please remember to contact Altavista, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services, or if you would like to impose, add, or to modify any reasonable restrictions to our investment advisory services. Altavista shall continue to rely on the accuracy of information that you have provided.