The Number One Question Asked

The number one question I’ve been asked lately is, “if Trump loses will the market take a tumble and have a big correction?”

Well, that’s a great question!

To answer, one must take an objective position politically because as everyone knows this has been the most contentious presidential election campaign in over a century. Both parties have overheated and outspoken participants. Currently the polls have Biden at a slight advantage, however most individuals question the accuracy of these polls since the 2016 election. So the election could go either way.

This question is also quite timely since the markets just recovered from its plunge earlier this year, helped recover by forceful responses by the federal reserve and the $2 trillion fiscal infusion from the Cares Act, both assisted to bring back the market.

Historically when there is tight presidential race the stock market reacts positively soon thereafter averaging up over 5%. But if one dives a little deeper into the economy today and analyzes the various ingredients helping the markets to excel, one would see three distinct parts.

The first part is that it’s being reported that the economic effects of the coronavirus are somewhat diminishing throughout most of the United States. The opening of cities and states will spur economic activity. The more economic activity and the more businesses open, the more people will go back to work creating more spending and growth of the economy.

The second part, low interest rates is the second important ingredient keeping the Economy purring. Historically, low interest rates keep housing construction booming and fuel refinancing mortgages. Low mortgages can lower the cost of people’s monthly expenditures, allowing people to save more and also spend more. Both help our economy.

The third part is the greatest ingredient sparking the stock market. It is the Federal Reserve and their favorable fiscal operations. Ben Levison, describes the Fed’s moves in Barron’s, “The Federal Reserve is operating the bubble making machinery. It is pumping trillions of dollars into the economy. More than $7 trillion has been slowly put into fiscal policies since the start of 2020. The Fed this time around is purchasing not only reasuries, mortgage back securities, but also investment grade and high yield bonds. All this buying back has served to lower interest rates to near zero.”

Typically, the Fed has caused the bursting of financial bubbles, including the “.com bubble” of the late 90s and the housing bubble, by raising interest rates.

But that’s not going to happen now — at least not yet. Fed Chairman Jerome Powell effectively promised in several public announcements their intentions to keep rates low for years, which means there should be plenty of cash being pumped into the economy keeping the stock market bubble growing, regardless of who is president.

MKM partners strategist Michael Jordan, expects stocks to outperform over the next one to three years. He predicts that a strong economic recovery will follow the COVID-19 crisis. “If you assume that we beat this virus, and have a multi-year holding time, how could you not prefer to own stocks that have been leading the markets so far this year?”

The answer to the question certainly has multiple parts leading to multiple answers. Each side of the isle can make a case for their candidate. Historically it is very difficult to vote out an incumbent president, especially when you have a rising or improving economy. Fortunately, only one candidate can win.

One thing is for sure, your team at Woloshin Investment Management is working hard every day building strong portfolios and professionally managing your savings to help meet your income and growth objectives.

We Are Here For You!

Warmest Regards,

Your friends at Woloshin Investment Management