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Political Pollution

June 24, 2020 by Brendan Mullooly

What if I told you I had a rock solid market indicator? It uses one signal to move out of stocks ahead of danger.

Here are the results of its last two signals:

  • 11/06/2012 it says sell. Over the next 12 months, the S&P 500 goes on to return 26%.
  • 11/08/2016 it says sell. Over the next 12 months, the S&P 500 goes on to return 23%.

Not so great, huh? So what’s our mystery indicator? The outcomes of the two most recent presidential elections, and general consensus heading into them.

The lesson to learn from our mystery indicator: binary investment decisions based on presidential elections are a fool’s game.

In 2012, the narrative was that Barack Obama’s re-election would be “bad for stocks”:

Obama Second Term Bad for Markets - Your Brain on Stocks

https://www.bloomberg.com/news/articles/2012-09-06/obama-is-bad-or-good-for-markets-in-poll-showing-global-division

In 2016, the narrative was that a Donald Trump victory would “tank the market”:

Trump Win Will Tank Markets - Your Brain on Stocks

https://www.politico.com/story/2016/10/donald-trump-wall-street-effect-markets-230164

I’ll concede that a sample size of two events with returns going twelve months out is far from scientific, so let’s take a look at the long term stock market returns under the two major political parties:

Republican vs Democrat Returns - Your Brain on Stocks

https://www.bloomberg.com/news/articles/2016-10-31/the-election-doesn-t-matter

Here are the returns under all presidents since the 1920s, which we would have as much luck divining something from as we would reading tea leaves:

Stock Market Performance by President - MacroTrends

https://www.macrotrends.net/2481/stock-market-performance-by-president

As 2020 winds on, we will inevitably hear intelligent-sounding premonitions of what either candidates’ win or loss will do for the markets. Based on the pitiful past results of such fortune-telling, I wouldn’t recommend paying much attention. It’s far more important to have a grip on your own financial situation, goals, and plan than it is to predict what a certain individual’s impact on the market will be. This is especially true when the evidence suggests the US economy and markets do well over time because of our people, not necessarily who’s in charge.

Don’t allow political pollution to interfere with your investments.

Filed Under: Investing Tagged With: investor psychology, politics

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  2. Tim’s Top Links – 6/25/20 says:
    June 25, 2020 at 9:44 am

    […] ‘Political Pollution’ – Brendan Mullooly – Your Brain On Stocks […]

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    June 26, 2020 at 8:47 am

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  4. Opening Pandora's Box | Mullooly Asset Management says:
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Brendan Mullooly, CFP®

Brendan Mullooly, CFP®

Brendan Mullooly is a New Jersey based CFP® professional and investment advisor at Mullooly Asset Management, Inc.

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The content on this website reflects the personal opinions, thoughts, and analysis of Brendan Mullooly. It should not be taken as a description of services provided by his employer. The opinions expressed on this website are for general informational purposes only and are not intended as specific or personalized financial advice. The views on this website are subject to change at any time without notice. Nothing on this website constitutes investment advice or a recommendation that any particular security, portfolio of securities, transaction, or investment strategy is suitable for any specific person. Any mention of a particular security and related performance data is never a recommendation to buy or sell. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.

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