Election Day Count Down
Today is August 3rd, which is an important date because we are now three months or roughly 90 days out from election day. That three-month period is very important, from a historical standpoint when it comes to the markets and elections. The markets traditionally do not really pay attention to the elections until we get close to them. Going back to 1928, the S&P 500’s performance in these three months has predicted the outcome of the election 87% of the time. It’s only been wrong a total of three times. It has correctly predicted the outcome of every election since 1980. Why is this important and how does this happen? The S&P is only a measure of investor sentiment. When the market is down, leading into election day for the three months prior to it, the incumbent party has traditionally lost. When the market is up leading into election day, the incumbent party has traditionally won. In this election cycle, things are going to get very, very rough. There’s going to be a lot of news coming from both sides. The best thing to do is stay calm, sit back, and not watch the debates or conventions. Just watch the market. This past Friday, the S&P 500 closed at 3,271. If you want to turn off the TV and just kind of enjoy your time, that is probably best. If the market is above 3,271, then that is indicative that the incoming party, President Trump, is going to win. If the market is below that level, that is indicative that the incumbent party, President Trump, is likely to lose the election come November 3rd. If you watch the market, it has a good predictive measure and we think it will be very informative. It was right in 2016 when almost everyone else was wrong. It broke late, around the last 10 days before the election in 2016. The market traded down almost every day and then we saw a surprise upset. Ignore the polls, enjoy the fall, and kind of watch the S&P for direction.
Consumer Concern
Last week, the report on consumer confidence showed a decline for the month of July. We were not shocked to see that since the concern over the virus has come back strong. We are watching that carefully because of what is happening in Washington, D.C. this week. Additional unemployment benefits expired last week and, as of the weekend, Congress was nowhere close to a deal to get that extended. That is a big deal for the consumer. Until we get a deal done on that, we can expect volatility in the market to pick up. If a deal is not reached, it will take roughly $12 billion per week out of consumer spending power. With increased unemployment claims and decreasing consumer confidence, we are starting to see some of the consumer numbers deteriorate a little bit. We are anxious to see what happens in Washington this week and how it relates to you and your portfolio.
More in the Tank
When you look at it at a 35,000-foot level and rewind back to March and April when all this started, the administration initially designed the stimulus for an unemployment amount of at least 40 to 50 million people. The good news is that, as of today, August 3, 2020, we haven’t gotten anywhere near that number. We got up close to 30 million unemployed and then we started to hire people again so that number started to go down. The US still has a good bit of reserve in the tank due to the way it was initially designed and because of the fact that it never got as bad as the original anticipated amount. In addition to that, if you drill down on just the month of July, there’s a lot of popular press right now with a surge in the cases and that’s important, but there has been talk that the recovery sort of fell apart. The reality is that it did not. We still had a good job growth number in July, the housing market is red hot and our manufacturing index has gone from a deep contraction back to even and expanding again. When you put all of that together, we are on track just fine. As we go into the fall, we’ve go[...]
