Out and InJanuary 20, 2021 -
Categorized in: IAG News
For every inauguration there must be an equal and corresponding “outaugaration.” If it isn’t already, this should be one of the primary laws of politics.
Only one person can hold a public office at a time, and today we witness the transition of significant power from one President to the next. For investors this can be a time of uncertainty and stress.
The outgoing administration’s policies were generally positive for businesses and employers. Lower tax rates and a slowed pace of new regulations created a positive environment for businesses to thrive. This was at least partially offset by unsettled trade and immigration policies, a global pandemic, and unpredictable communication.
The incoming administration’s policies are likely to be less positive for businesses and employers if campaign promises are any indication of legislative plans. Higher taxes, higher employee costs, and more regulations may challenge companies to remain profitable over the next few years.
It is really easy to jump to the conclusion that the new business environment will necessarily cause the stock market to drop. Of course, that is always possible (for this reason or any other traders can justify).
However, according to LPL Research, since 1951 the average annual return for the S&P 500 Index when Democrats control both the White House and Congress is a positive 9.1% per year.
Why would stocks rise when facing policy challenges? Companies adapt to changing rules to remain profitable. Capitalism requires creativity – make it better, make it faster, make it cheaper, make your product or service more desirable than the competition. Think of it as the ultimate democracy where people vote with their dollars and every day is election day.
There is never a guarantee that history will repeat itself, and, indeed, there were four times that the S&P 500 Index fell when Democrats controlled the White House and Congress.
Given the passions of the day, many people will say it is different this time. And it is. It is always different this time. The challenges our country and companies face change constantly. There are always new problems to solve.
Whether your politics leans toward the previous administration or the new administration, your financial plan and portfolio should be designed based on your reality instead of politicians rotating out and in.
Quote of the week: Groucho Marx: “Politics is the art of looking for trouble, finding it everywhere, diagnosing it incorrectly, and applying the wrong remedies.”
Securities offered through LPL Financial. Member FINRA/SIPC. Investment advice offered through IAG Wealth Partners, LLC, (IAG) a registered investment advisor and separate entity from LPL Financial.
All indexes are unmanaged and cannot be invested into directly. Past performance is no guarantee of future results. The modern design of the S&P 500 Index was first launched in 1957. Performance before then incorporates the performance of its predecessor index, the S&P 90.
Any opinions are those of IAG and not necessarily those of LPL Financial. Expressions of opinion are as of this date and are subject to change without notice. This information is not intended as a solicitation or an offer to buy or sell any security referred to herein. No strategy assures success or protects against loss. Investing involves risk including loss of principal.
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