In the niche genre of investment-related comics, this is my favorite:
It perfectly encapsulates the dog-chasing-its-tail nature of daily investment commentary.
Here’s a real-world example:
CNBC attributed a recent mid-morning market decline to “slowdown fears.” But if stocks had turned green by the afternoon, CNBC undoubtedly would’ve replaced “slowdown fears” with “economic optimism” or some other generic positive-sounding phrase. It’s important for investors to understand that the narrative follows the price movement, not vice-versa. If you’re skeptical about that, let’s turn our attention to tomorrow.
Nobody knows whether stocks will be up or down tomorrow. History isn’t a helpful guide, since stocks are positive on 51% of days and negative on 49%. All we know is this: at 9:30 the opening bell will ring, and individual stocks will burst to life, some bouncing higher while others slump lower. And by 9:31, every media outlet will have a prominent headline perfectly explaining why “the stock market” is up or down.
Occasionally some newsworthy development is the clear driver of stock market movement, but usually daily market watchers are studying randomness, putting themselves at risk of missing the forest through the trees.
Zooming out a little, forging connections between stock market gyrations and presidential candidates is a staple of every election season.
When stocks swooned in early August, President Trump was quick to dub it “The Kamala Crash.” Like most run-of-the-mill stock market corrections, it was quickly forgotten as stocks surged to new all-time highs over the next few weeks.
Similarly, before the 2016 election, Politico confidently predicted, “Wall Street is set up for a major crash if Donald Trump shocks the world on Election Day and wins the White House.” By election night, that prediction appeared true—global markets plummeted as a Trump victory became clear. But the overnight losses were fully erased by the time the market closed the next day.
Diving deeper, the stock performance of specific strategies under the last two administrations might surprise you.
It’s reasonable to expect that Trump’s support of deregulation and the 2nd Amendment would benefit bank stocks and gun stocks, respectively. But that expectation would prove dead wrong during his first administration, with those areas getting crushed by a diversified basket of stocks:
You might assume that the Biden-Harris administration’s commitment to clean energy would be bullish for those companies. But you know what happens when you assume…:
Over the next two months, you will hear convincing arguments from both sides about how their candidate is better for the stock market.
“Trump will extend corporate tax cuts, so stocks will do better under him.”
“But Harris’s investment in clean energy and infrastructure will drive sustainable growth for the long run.”
“But those investment decisions should come from corporations, and lower corporate taxes will make that possible.”
“But lower corporate taxes will increase the deficit unless they are fully offset by higher growth, dragging on future economic gains.”
On and on it goes. Like a dog chasing its tail. Fortunately for you, I have The Definitive Playbook for Election-Year Investing:
1. Recognize that whatever happens in the market will surprise us all. Nobody has a crystal ball.
2. Because of #1, price movement always comes before the narrative. The perfectly coherent explanations of the market’s movements can only be contrived after those movements, which makes it seem like a tidy cause-and-effect. Reality is much more complex.
3. What happens on Election Day matters, but there are a million other unpredictable variables that collectively matter much more. Disregard the other variables at your own peril. Refer to the two charts above as prime examples.
4. Remember that you do not invest in presidential candidates, you invest in businesses—a diverse set of the best businesses on Earth, led by smart leaders and innovative thinkers who are solving problems, growing revenues, increasing productivity, and, ultimately, tasked with growing your investment regardless of who occupies the Oval Office. Refer to the two charts below for proof.
Memorize that playbook and you’ll avoid missing the forest through the trees this election season. Your portfolio will thank you.
Disclaimer: Truepoint Wealth Counsel is a fee-only Registered Investment Adviser (RIA). Registration as an adviser does not connote a specific level of skill or training nor an endorsement by the SEC. More detail, including forms ADV Part 2A & Form CRS filed with the SEC, can be found at TruepointWealth.com. Neither the information, nor any opinion expressed, is to be construed as personalized investment, tax or legal advice. Any reference to an index is included for illustrative purposes only, as an index is not a security in which an investment can be made. Indices are unmanaged vehicles that serve as market indicators and do not account for the deduction of management fees and/or transaction costs generally associated with investable products.