We've mentioned the upcoming election in many of our emails. We think it's time to talk about the relationship between stocks and elections. Don't worry, we're not getting political on you.
Politicians often take credit for the economy. And it's true, government policies influence components of the economy which lead to decisions investors make with their money. For example, lower tax rates increase consumer spending - in turn increase potential profits for individual companies. In contrast, increasing regulations on an industry can drive costs up, reducing profit margins. So there is an important ripple effect through decisions made by any politician.
Now put your CEO hat on. Your job is to create and deliver a product that consumers want and can be profitable through different economic landscapes. If legislation changes you may need to pivot or re-calibrate your plan. Companies have been doing this for a very long time. In fact, if you take a look at the history of the stock market, the long term trajectory is a upward regardless of which political party is in the white house.
Source: BlackRock Investments. Morningstar as of 6/30/2020. Stock Market Represented by the S&P 500 Index from 1/1/70 of 6/30/2020 and IA SBBI U.S. Large Cap Stocks index from 1/1/26 tp 1/1/70.
Past performance does not guarantee or indicate future results. Index performance is for illustrative purposes only. You cannot invest directly in the index.
We know the market does not like the short term uncertainty of the upcoming election. From the CFO standpoint, we encourage you to focus on your long term financial goals. Consider the adjustments and course corrections we make during annual reviews to make sure your plan maneuvers the ever changing environment. If you have questions, concerns or your goals have changed - we want to know!