Feature Story

The longer-term performance of the stock market has historically proven immune to the who controls the white house and congress. Investors with a strong affiliation to either party sometimes fear how control by the opposing party could impact performance but statistics simply show otherwise.

The accompanying table, provided by State Street SPDR ETFs, shows the performance of the S&P 500, a broad measure of the U.S. stock market, under various scenarios of government control. For example, the first scenario “Unified Government”, in the top line, is when the white house and congress are both controlled by the same party. This has occurred in 42 of the past 86 years and the market produced an average annual gain of +10.03%. The best scenario is having a split congress and a Democrat in the white house delivering a +13.60% average annual gain but this scenario only occurred in 4 years since 1933.

Source: SPDR ETFs 2020 Election Chart Pack

Click here to see more stats

Predicting the short-term performance of the stock market is simply impossible. Some investors fret about the uncertainty today due to the election, COVID-19, and more and choose to sit on the sidelines with their investments. I believe this is simply shortsighted. Markets are always facing uncertainties and most often ones we never contemplate such as a pandemic that was nowhere at any time on most investors’ radar. I argue that there is far more certainty today regarding the pandemic given the fact that we know we are in one, something we could not begin to imagine a year ago.

Some investors will look at the above table and simply say “this time is different” and none of this history matters. Maybe. But given that the market has produced strong gains in every political scenario over 86 years…those are odds I’m willing to take.

This Week’s Performance Highlights

Source: www.YCharts.com

Stock prices worldwide, along with everything else, fell in the most recent week as concerns about rising COVID-19 cases weigh on investors. Also contributing to the declines were comments from various companies that fourth quarter results may not be as good as Wall Street has been forecasting.

Economic Indicators

Gross Domestic Product (GDP) soared in the third quarter with the headline number showing a gain of +33.1%, inline with expectations, after collapsing in the second quarter. The headline number can be a bit misleading as it is an annualized rate. The below graph provides, I think, a better perspective showing GDP in the second quarter, the low point since the pandemic’s start, down just -10.2% from the 2019 year-end high and the current quarter now down just -2.7% from that high.

Source: https://fred.stlouisfed.org

The third quarter’s big comeback was helped a great deal by trillions of dollars of government stimulus provided to families and businesses hit by the pandemic. Consumer spending, businesses investing in new equipment, and a buildup in inventories were big contributors to the strong overall quarter while the trade deficit was a drag due to a big jump in exports than imports.

Although the quarter was strong, many fear that momentum has slowed due to a resurgence of COVID-19 cases and the lack of continued economic stimulus.

Durable Goods Orders, orders for items lasting longer than a year, increased for the fifth consecutive month up another +1.9% in September. The strong showing for the industrial sector helped this number come in meaningfully better than economists’ forecast of a decline of -0.2%.

Jobless Claims continued their downward trend with initial claims at 751,000 for the most recent week compared to 791,000 the week before. Continuing claims, or the total number of people receiving ongoing benefits, also fell but some expect this positive trend will stall in the coming month.

Although Consumer Spending continued to increase, up a better-then-expected +1.4% in September, Consumer Confidence registered a very small decline in the most recent month due to increased concerns about their future. Increased purchases of cars, trucks, and fall clothing combined with spending on medical and dental services fueled the overall increase. Consumer spending is now just -2% below pre-pandemic levels.

Housing prices continued their ascent according to the Case-Shiller Home Price Index up +5.7% nationally compared to the same period last year. Increased demand due to the pandemic and extremely low interest rates are driving prices higher.

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