Before November 3rd, we heard myriad concerns about possible outcomes from the Presidential Election. Herewith, we compiled our Greatest Hits for your reading pleasure:
“If Trump is re-elected, we’ll see a breakdown in the social order and chaos will reign across the land. Major American cities will burn. The markets will plunge. The National Guard will have to restore order. We’ll have a police state on our hands.”
“If Biden wins, the Progressives will ruin what’s left of our Democracy and turn us into a Socialist State. Taxes will go to the moon. The immigration floodgates will be opened. The markets will plummet.”
“Don’t worry, COVID will disappear on November 4th.” (This is our favorite.)
In each of these conversations, we gently tried to point out that the future short-term direction of things is fundamentally unknowable, and any investment decisions made based on what “might” happen is nothing more than speculation – which is akin to gambling. And long-term investors do not gamble. They invest in the greatest companies in the world. Companies who’ve endured through many changes in political leadership and still figure out a way to make profits for their shareholders. That is The Great American Story, and we’re pleased to report it’s alive and well.
So, what do we know as of this morning?
- The markets had their best performance during an election week since 1932. The S&P 500 was up roughly 7% for the week.
- Joe Biden is now the President-elect, the Republicans look poised to retain control of the Senate and the Democrats retained their majority in the House, albeit by a narrower margin. Assuming this is how it all shakes out after any challenges, we should see a lot of legislative gridlock for the next two years, which isn’t the worst thing in the world. Remember – markets love certainty. And gridlock means very slow change in policies and a lot of compromise. (Sure, President Biden will sign a host of resolutions on his first day. So did Trump. And every President before them.)
- We also know that putting even an ounce of faith into pollster’s predictions is an exercise in futility. All that hand wringing, arguing, and rending of garments about a landslide win for either side and the ensuing chaos from it didn’t happen. What a colossal waste of energy. Don’t fall for it again.
- We know that Pfizer announced early results from their late stage vaccine trials indicating a stunning 90% effectiveness rate. (The common flu vaccine tends to run closer to a 50% effectiveness rate.) A vaccine could be ready for wide distribution as early as mid-December. This will be a day for the ages. Life will get back to some semblance of normal for us all.
- We know that, despite COVID’s devastating impact on the economy in Q2 and Q3, corporate earnings strength has pleasantly surprised even the most pessimistic analysts. The worlds greatest companies are resilient and getting even stronger. And markets are responding accordingly.
All of this is good news for both the capital markets and for economic growth overall. Yes – there will be setbacks. There always are. But the fundamental underpinnings for economic expansion of low interest rates, corporate profit growth, and a strong labor market give us hope for a much better year coming up.
In past commentaries, we’ve mentioned that markets this year seem to be following the Playbook from 2009 and the recovery from the Financial Crisis. Here’s an update to that observation:
(S&P 500 index, daily return from March 9th, 2009 and March 23rd, 2020 to end of year.)
You’ll notice that, despite all the noise around the election, COVID, etc., markets have continued their march upward. But make no mistake; there are powerful forces at work to keep investors hyper-focused on political division, racial unrest, geopolitical fears, etc. To this, we offer the following two observations and recommendations to immunize yourself from it:
- The world is always ending…but it just never ends. If you’re old enough to read this, things have been getting better as long as you’ve been alive. These worries have always been there. Yes, they’re louder today than in the past – thanks to traditional and social media. But they’ve always been there. Good people will continue to work to bridge divides. Bad people will continue to drive wedges between them. Pick your side.
- The four most dangerous words in investing are, “It’s different this time.” The simple truth is – it’s never different – it’s just a new cast of characters in different costumes. Until such time as capitalism is no longer a viable engine for wealth creation, our message to invest consistently and diligently in the great companies of the world will not change.
In closing, we encourage readers to look forward. Whether your candidate won or lost, we offer these pearls of wisdom from author Carlos Castaneda:
“We either make ourselves miserable or we make ourselves strong. The amount of work is the same.”
As post-election events unfold and we wind down a very interesting year, we’ll keep readers updated. In the meantime, please don’t hesitate to call with any questions.