Presidents change, markets remain
Tuesday 5th November, saw the outcome of the 2024 US presidential election, with former president, Donald Trump, elected again becoming the serving president for the next four years.
The election campaign saw Former President Donald Trump pursuing a second term for the Republicans, while Vice President Kamala Harris hoped to make history as the first female president for the Democrats. Polls and betting markets were sharply divided with sources like The Economist and other major polls predicting a lean toward a Harris victory[1], whilst many prominent bookmakers saw Trump as the frontrunner[2]. But, on election day, US voters had the final say, putting Trump back into The White House for a second term.
The US president is often considered one of the world’s most powerful figures, wielding substantial influence over the world’s largest economy. The run up to the election was a roller coaster, with President Biden withdrawing from the race and an assassination attempt against Trump. Perhaps it is understandable that the media, politicians, celebrities and business owners alike wish to make their voice heard during campaign season. We saw Elon Musk coming in to bat for Trump and Taylor Swift for Harris, as well as the usual fierce partisanship from both sides.
What does this mean for investors?
For investors, it is natural at times of political uncertainty to wonder whether they ought to act, perhaps altering their portfolio to position for a specific outcome, or to move money into cash deposits until things ‘settle down’. Some choose to invest this way, mostly at their peril, as very few managers possess the ability to consistently predict such events[3].
A better strategy, as is adopted in your portfolio, is to outsource this guesswork to the market itself, relying on the millions of daily participants to come up with their expectations and reflect them in prices. Thankfully, given both democrats and republicans support capitalism and believe in personal freedom and property rights, this strategy is a tried and tested approach to investing.
The chart below shows the Global equity market return over the last century or so, where the colours represent whether the sitting US president was Republican (red) or Democratic (blue) at the time. There is little to draw from the red and blue sections, both parties have resided over some fantastic periods, and some not so fantastic ones. However, the ability of capitalism to create wealth despite the ups and downs is evident, with $1 invested in 1926 becoming nearly $10,000 by 2024.
Figure 1: Democratic (blue) and Republican (red) Presidents and equity market returns
Source: Dimensional Returns. Index: Albion World Stock Market Index [4]. Date: 07/26-09/24. Returns in USD
Whilst guessing against randomness is impossible, taking on the known risk that equity returns are far less certain than holding cash rewards investors who ignore this short-term noise and focus on the long-term. The choice of the US President is important to some, but to the long-term investor it is largely irrelevant.
“He who lives by the crystal ball will eat shattered glass.” – Ray Dalio, CIO of Bridgewater Associates
[1] The Economist (2024). https://www.economist.com/interactive/us-2024-election/prediction-model/president
[2] Oddschecker – US Presidential Election. https://www.oddschecker.com/politics/us-politics/us-presidential-election/winner
[3] Albion GAMETM 24.5 – 90% of US equity fund managers were beaten by the MSCI USA IMI Index 20Y to Jun-24.
[4] https://smartersuccess.net/indices
Important notes
This is a purely educational document to discuss some general investment related issues. It does not in any way constitute investment advice or arranging investments. It is for information purposes only; any information contained within them is the opinion of the authors, which can change without notice. Past financial performance is no guarantee of future results.
Products referred to in this document
Where specific products are referred to in this document, it is solely to provide educational insight into the topic being discussed. Any analysis undertaken does not represent due diligence on or recommendation of any product under any circumstances and should not be construed as such.
