Offered by T. Lloyd Worth, Worth Financial Partners
Elections elicit strong emotions. High disapproval ratings for both candidates, as well as Donald Trump’s unconventional candidacy, have taken these emotions to another level this cycle. Politics is one of many emotional biases that can work against investors trying to achieve their long-term financial goals. Candidates in office may influence how investors feel about the economy and markets and can get them off track. Separating political views from investment decisions is difficult, and while presidents can set an overall tone for the economy and markets, over the long term the underlying fundamentals of the economy and corporate profits matter more.
On that score, the picture is better than some in the media would have us believe. Economic data in September and early October suggest stronger growth in the second half of the year after subdued real gross domestic product (GDP) growth in the first half. A solid 192,000 jobs per month, on average, were created in the third quarter of 2016 (based on Bureau of Labor Statistics data). Consumer confidence has reached its highest level since the end of the Great Recession.¹ Manufacturing activity rebounded in September and is expanding, based on Institute for Supply Management (ISM) data. In addition, the Conference Board’s Leading Economic Index (LEI), an aggregate of economic indicators that tend to lead the overall economy, is signaling continued economic growth. All this data suggests that the odds of a recession in the next year may be low.
All in all, economic and market fundamentals generally look pretty good to us. We all know there are risks including a policy mistake by a government or central bank, Brexit, China’s bad debt problem, and above-average stock valuations. And despite a calm summer, stock market volatility has picked up in September and early October. But stocks have historically done well in the fourth quarters of election years and have performed well under many different party leadership combinations.² Despite the emotions this election may bring, we encourage you to stick to your plan and stay invested.
As always if you have any questions, we encourage you to contact us at Worth Financial Partners, (303) 558-0214.
¹ The Conference Board Index
² The S&P 500 is up an average of 3.6% during fourth quarters of election years, excluding 2008, and has been higher 87% of those quarters.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual security. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing.
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