Election Over!

Well, we are glad THAT is over!

After months (years) of anticipation and anxiety, our great country completed a Presidential election with essentially no controversy.

Whether you are elated or angry with the result as an American and an investor, you have to be satisfied with the lack of volatility surrounding the process.

Going into the election, we believed everyone was expecting this to be a contested election, one that could take several weeks, if not months, to decide.

This created an anticipation of heightened volatility and investors hedging their risks.

When everyone in a market expects something to happen, if it does happen, the market reaction is typically different from what you would expect.

In this case, the event (a contested election) didn't even happen.

Accordingly, stocks have ripped! We have seen new 52-week highs in most of the major indices and sectors and an expansion of breadth.

The BULL market appears healthy and strong.

So – what happens next?

We think it is interesting to look back at the last two post-election years – 2021 and 2017.

Here is a chart of the S&P 500 from the summer of 2020 through year-end 2021…

After consolidating over the summer of 2020, the S&P 500 rallied in the fall but then treaded water into the election.

Once Biden won, however, the stock market went pretty much straight up, even with the contentious period and the events of January 6^th .

The S&P 500 ended up almost +27% for the year. It barely touched the 100-day moving average (the yellow) line all year, only breaching it once.

This was during a period when the Federal Reserve was keeping interest rates flat. Here is that chart…

In the chart, you can see that the Fed kept rates flat for the year.

This period was the COVID recovery period, which culminated in the post-COVID mini-bubble. We saw big speculative moves in SPACs, cryptocurrencies, metaverse stocks, and several other areas.

Eventually, it would result in the BEAR market of 2022, but the post-election year of 2021 was strong.

How about the LAST time that Trump was elected President?

Here is a chart of the S&P 500 from June 2016 through year-end 2017…

The chart is almost identical to what we saw in 2020-21.

The market consolidated over the summer, sold off into the election, then rallied and never looked back.

In fact, 2017 was an excellent year for the S&P 500. It was +19.4% for the year and NEVER breached the 100-day moving average. It is one of only TWO years since 1928 (the other being 1954) where the S&P 500 never went below that moving average.

Both of these post-election years – which were also the first year of a new Presidency – were solid years.

There is an interesting contrast on the interest side of the equation.

Here is what the Fed was doing during the first year of the initial Trump Presidency…

They were RAISING rates!

Despite moving rates up from close to 0% towards 2% the stock market didn't miss a beat. Again, we saw one of the least volatile stock market years in history.

So – what do we think will happen next year?

We don't know, and no one else does either!

We know that we have been seeing breadth signals all year that would indicate further strength.

We also know that we are only about halfway through on time and performance relative to an average BULL market.

We also believe that, in aggregate, the policies of a Trump Presidency and a Republican Congress should be better for the stock market. There could be some nuances, but overall, we think they will be positive.

Finally, we think it is unlikely that we will experience a period of sharply rising interest rates, which should also be good for the stock market.

Even if we were in one (like 2017), would it even matter?

The Fed was raising rates back then, and we had one of the best years of the last century.

The world is undoubtedly different from 2016 and 2020, but there are still many similarities.

Could we be looking at a similar record-setting year for stock market performance?

We will soon see…