The 2020 Election and the Stock Market by Strubel Investments

February 11, 2020

1. What will the elections mean for the market?

 

As American politics become more divided and as more extreme political figures appear, there is a tendency to fear calamity if the person or party you don’t support wins. Since the 2020 election slate of candidates is polarizing, this prediction of calamity will reach fever pitch as November approaches.

Regardless of who wins in November, it’s worth remembering that it’s unlikely to change much on the economic and stock market front. The House is likely to remain in Democratic control, while the Senate is likely to stay in Republican hands. No matter who is elected President, one chamber of Congress will not cooperate. The next two years will likely resemble the final two years of the Obama administration and the past year of the Trump administration. Lots of political theater, but no big economic policy-changing developments. This isn’t to say there might not be changes that affect your personal life or impact issues you are passionate about (e.g., immigration, Supreme Court decisions, etc.). What I am saying is the likelihood of huge, economy and market moving changes that will affect your investment accounts is quite small. It’s also worth keeping in mind that throughout American history, over the long run, the economy and the stock market have grown. We’ve weathered world wars, an oil embargo, political climates that favored the Right, and ones that favored the Left.

 

2. Why is having a few large stocks not a bad thing?

 

If you have heard of the rise of the so-called FANG stock, then you may know it stands for Facebook, Amazon, Netflix, and Google. It really ought to be called MAGFA (Microsoft, Apple, Google, Facebook, and Amazon) since they are actually the five largest stocks. Some people call the market or the stocks “a bubble.” The chart below, from the WSJ and Dow Jones shows the market weight of the top five companies since 1965.

 

 

 


 
Right now, the five largest stocks account for a little over 16% of the S&P 500. But back in the late 1960s, the five largest stocks accounted for up to 28% of the market! In fact, for much of the market’s history, it’s been relatively normal for a handful of large, successful companies to make up a big part of the market and drive market returns. Today’s stock market is not unusual in historical terms.

I think the psychological scars of the Dot Com Bubble and the Great Recession have made people imagine danger and disaster around each corner. With this mindset, it’s easy to envision bubbles.

Our portfolios are still sufficiently diverse, even though we own some MAGFA—or whatever acronym you’d like to use – stocks.

 About Our Portfolios

 

The Capital Appreciation Fund and the Dividend Fund are innovative, investor friendly alternative to traditional actively managed mutual funds called a Spoke Fund ®. We can also customize portfolios for clients seeking less risk and volatility by including allocations to other asset classes such as bonds and real estate.

Spoke Funds are significantly less expensive and more transparent than a large majority of mutual funds. Both portfolios are managed for the long term using value investing principles. Fees for both portfolios are 1.25% of assets annually. That figure includes both our management fee and all trading costs. We try to minimize turnover and taxes as well in both funds.

Investor accounts are held in your name (we never take investor money) at FOLIOfn or Interactive Brokers*.

For more information visit our website.

*Some older accounts may be custodied at TradePMR.
 

Disclaimer

 

Historical results are not indicative of future performance. Positive returns are not guaranteed. Individual results will vary depending on market conditions and investing may cause capital loss.
 
The performance data presented prior to 2011:

  •  Represents a composite of all discretionary equity investments in accounts that have been open for at least one year. Any accounts open for less than one year are excluded from the composite performance shown. From time to time clients have made special requests that SIM hold securities in their account that are not included in SIMs recommended equity portfolio, those investments are excluded from the composite results shown.

  • Performance is calculated using a holding period return formula.

  • Reflect the deduction of a management fee of 1% of assets per year.

  • Reflect the reinvestment of capital gains and dividends.

Performance data presented for 2011 and after:

  • Represents the performance of the model portfolio that client accounts are linked too.

  • Reflect the deduction of management fees of 1% of assets per year.

  • Reflect the reinvestment of capital gains and dividends.

 
The S&P 500, used for comparison purposes may have a significantly different volatility than the portfolios used for the presentation of SIM’s composite returns.

The publication of this performance data is in no way a solicitation or offer to sell securities or investment advisory services.

 

 

 

 

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