Fitness fanatics are known for pushing boundaries and frequently wanting to do more of what they see as a good thing for their bodies and minds. However, this tendency can instead lead to over-training which is counterproductive and can lead to injury, burnout, and other setbacks.
A similar phenomenon is seen in investor behavior: Investors can be their own worst enemy as they attempt to time the markets. People like to believe they are smarter than the market and they can trade in and out of equities to avoid the pitfalls they see so clearly. They expect that once the market decline takes place, they will buy at a more opportune time. However, it is often the case that the market decline they expected does not occur, leading them to regret the still-higher prices and remain in cash. Or the decline they expect does occur but they become increasingly fearful so they remain on the sidelines and miss the elusive entry point.
Election years are fraught with uncertainty since there appears to be so much on the line in terms of fiscal policy, tax changes, and regulatory actions, to name just a few. For months, we are subjected to a myriad of advertisements, interviews, and articles that highlight the differences between the candidates. Add to that the polls that lay out the current standings of the candidates, some of which then try to predict election outcomes based on unspecified assumptions or expectations. This particular election cycle is even more unusual due to the sitting President standing down so late in the cycle.
Let us consider a few points before moving on:
- Polls have become less reliable for a variety of reasons including fewer people willing to answer random phone calls, people afraid to publicly admit their support for a candidate, and a growing number of people in the “undecided” camp.
- Presidents need Congress to pass legislation and can take only limited executive action. This means that no matter who wins the Presidential election, the ultimate path of change may be quite limited if Congressional control remains divided. In fact, even if Congress is controlled by one party, getting legislation passed is not a given.
- Election platforms are more of a “wish list” than a mandate. Many of the policies outlined by candidates are later altered significantly if not cast aside entirely, so making investment decisions based on them is reckless.
Next, looking at the record of equity market returns under each of the major parties (see Chart I), it is clear that equities tend to move higher under both parties. The reality is that over long periods of time, equities generally go up. Even the occasional drawdowns, on average, appear to be fairly similar across both parties.
This is because companies are driven to increase revenue and profit regardless of which party is in control of the Executive or Legislative branch. Economic cycles are a natural feature of a market economy and the approaches taken by different administrations are also somewhat evolutionary rather than formulaic and static, which again means that investors are better off focusing on bottom-up fundamentals rather than politics.
The bottom line is that party affiliation matters little for equity market performance, period. Skip the impulse to exercise your trading finger around election time. Like overtraining in anything, it is likely to be counterproductive and leave you feeling sleepless, sore, and poor.
Firm Definition and Contact Information
Maple Capital Management, Inc. (MCM) is an independent SEC Registered Investment Advisor with offices in Montpelier, Vermont and Atlanta, Georgia.
This commentary reflects the views of MCM and should not be considered to be investment or financial advice. MCM does not warranty these views and will not update this communication after the date of publication. Any mention of specific securities is done for illustrative purposes and the securities mentioned may or may not be held in client accounts. No assumption or assurance should be taken that securities mentioned will be safe or profitable investments. Past performance is not indicative of future results
For further information, please contact Steven Killoran at 1-802-229-2838 or at [email protected]. For further information about Maple Capital, including a copy of our informational brochure, please visit our website at www.maplecapital.com.
Disclaimer
This document is a general communication being provided for informational purposes only. It is educational in nature and not designed to be taken as advice or a recommendation for any specific investment product, strategy, plan feature or other purpose in any jurisdiction. This material does not contain sufficient information to support an investment decision and it should not be relied upon by you in evaluating the merits of investing in any securities or products. In addition, users should make an independent assessment of the legal, regulatory, tax, credit, and accounting implications and determine, together with their own financial professional, if any investment mentioned herein is believed to be appropriate to their financial situation and investment profile. Investors should ensure that they obtain all available relevant information before making any investment. It should be noted that investments involve risks, the value of investments and the income from them may fluctuate in accordance with market conditions and taxation agreements and investors may not get back the full amount invested. Both past performance and yields are not reliable indicators of current and future results. All information presented herein is considered to be accurate at the time of production, but no warranty of accuracy is given and no liability in respect of any error or omission is accepted.
Past performance does not guarantee future results. Diversification does not guarantee investment returns and does not eliminate the risk of loss.
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