The Market Focuses More on the Macro Environment than Elections
President Obama and President Trump pursued very different policies while in office. Yet results in the financial markets were awfully similar during their terms. This supports our belief that the fundamental, macro environment has more influence on markets than which political party is in charge.
The chart below compares performance of the S&P 500 and across asset classes and sectors under the Trump administration versus the prior four years of the Obama administration. The leadership is nearly the same. The winners include technology, large-cap growth, consumer discretionary, healthcare, and US equities. The laggards contain commodities, energy stocks, and international equities.
How could this pattern have developed when each administration applied such drastically different policies?
We believe the economic regime has far more influence on market returns than politics. The past eight years have seen several persistent economic trends: slow growth, low inflation, and easy monetary policy. This type of macro environment benefits growth sectors such as technology, consumer discretionary, and healthcare. It is less beneficial to value sectors (example, low interest rates are a headwind to financials), and a headwind to commodity-producing companies, such as energy and materials, which are seeing lower commodity prices.
What’s an Investor to Do?
Many investors and commentators speak about politics and investing in the same breath. The data doesn’t support this link. We discourage investors from making investment decisions based on who is in the White House.
We believe earnings, economic growth, and decisions made by the US Federal Reserve are more important drivers of stock market performance. Therefore, we look to these fundamentals to help guide our investment decisions.
While we can’t say for sure who will win in November, we can say that staying invested has made the most sense for investors over time.