by Gary Alexander

October 27, 2020

This is the last weekly MarketMail before Election Day, so the best news I can give you is that “Stocks Typically Climb, Regardless of Who’s in the White House” (Wall Street Journal, October 23, 2020).

That doesn’t mean your vote doesn’t matter, but it means that we voters (in the aggregate) usually build some checks and balances (“gridlock”) into our ballots, voting one Party into the White House and the other Party into Congress – if not in the new President’s first two years, then usually in the first mid-term election. That happened in the Republican Revolution against the Clintons in 1994, in the Tea Party revolt against Obama in 2010, and in the Democratic backlash against Donald Trump in 2018…so vote in peace.

But what if there is a “Blue Wave” and Biden wins with Democrats controlling both houses of Congress? Or what if Trump pulls out a miracle win, with the House turning Red along with the Senate staying Red?

Over the last 90 years, from 1929 to 2019, one party controlled both chambers of Congress and the White House in nearly half (45) of those years, and the S&P 500 rose an average 7.45% during those 91 years, according to Dow Jones Market Data. The index was up 30 times and down 15 times. In the other 46 years – when there was a split government – the index climbed 7.26% on average, rising 29 times, falling 16 times, and remaining unchanged once, so there is virtually no difference in the outcome, long-term.

Standard and Poor's 500 Gridlock Performance Bar Chart

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

Usually, the 11 weeks between Election Day and Inauguration Day have been uneventful on Wall Street. When a new Party took control of the White House in 1968, 1976, 1980, and 1992, neither the S&P 500 nor the Dow Jones Industrials moved over 3.2% in either direction; but that changed in the new century with some rather dramatic shifts of power – with “hanging chads” in 2000, the financial crisis of 2008, and Trump’s surprising win in 2016, when the S&P 500 rose 6.2% between his election and his Inauguration.

On the other extreme, in 2000, the S&P 500 fell 6.3% during the 37 days of the contested election results between Bush and Gore. NASDAQ was hit hardest. The day after the election, when it was clear there was no immediate winner, the Dow dropped just 0.6%, the S&P 500 fell 1.6%, but NASDAQ crashed 5.4%. By December 13, when Gore conceded, the Dow was off 1.7%, the S&P fell -5%, and NASDAQ was -17%!

With NASDAQ up so far this year (+28.7%) vs. +7.26% for the S&P 500 and a -0.7% loss for the Dow, the tech-heavy NASDAQ could take a beating in November if there is a disputed election, but the Dow and S&P 500 might weather any 2020 electoral crisis with barely a scratch – if history is any guide.

Also, I hope we can look forward to a respite from all the silly sloganeering and political infighting once the votes are counted (I know, “Dream on, pilgrim.”) There has been so much misinformation abroad in the land that it would take a full-time neutral-minded truth squad to defuse the B.S. bombs on both sides.

Here’s a starter kit: Think ECONOMIC RECOVERY – no matter who wins. Demand an open economy!

We’re Getting Stronger – Don’t Let Biden’s “Dark Winter” Spook You

“Winter is Coming” – House Stark warning, in “Game of Thrones”
“We’re about to go into a Dark Winter” – Joe Biden, October 22, 2020
“It’s Morning in America” – Ronald Reagan, 1984

Is America recovering or dying, about to re-open or close down, about to freeze or enter a spring thaw?

According to the Philadelphia Federal Reserve’s latest state coincident indicators, several states have rebounded or almost fully recovered, reaching pre-pandemic levels. The Philly Fed measures four state-level indicators – payroll employment, manufacturing hours worked, the jobless rate, and wages paid.

Four states have September readings above their March readings: Kentucky (+2.69%), Utah (+2.10%), Montana (+0.94%), and Missouri (+0.18%). Nebraska, Georgia, and Oklahoma are nearly recovered. More importantly, 48 of 50 states have improved in the last three months (only Hawaii and New Mexico lag.)

Uneven Recovery Pictograph

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

This study highlights the folly of “one size fits all” economic policies, advocated by Joe Biden. Some states are sparsely populated and have remained relatively open with little COVID-19 damage to their economies. More densely populated states have naturally been hit harder. According to the Philly Fed’s data, the hardest-hit states have been tourist-oriented Hawaii and Nevada or states in the Northeast, which also have the worst jobless rates vs. under 4.5% jobless in Nebraska, Vermont, and North & South Dakota.

Hardest-Hit Economies Table

Economic activity in the U.S. is now growing at the fastest quarter-over-quarter rate ever, and the current data is uniformly strong. Worker filings for jobless benefits are at their lowest level since the pandemic began; existing home sales rose 9.4% in September to a 14-year high; the manufacturing PMI rose to 55.5, the highest level in 20 months; the service index rose to 56, up from 54.6, and business confidence in both services and manufacturing rose to their highest level since May of 2018.

Yelp reported that more new restaurants opened in September than in 2018, 2017, and 2016. Third-quarter median weekly earnings increased 8.2% (year over year), according to BLS, and they rose more (+9.2%) for the bottom 25% of earners, including +9.3% for blacks and +11.8% for Hispanics. Retail spending was up 5.4% in September, including +23.8% for online retailers. This is in stark contrast to Europe, which is largely shutting down once again, due to a sharper rise in coronavirus cases than in America.

That’s another problem of focusing on U.S. statistics alone, or by comparing U.S. statistics to specific European nations. Instead, we should compare all of the U.S. to all of Europe. Taken as a whole, the U.S. economy is doing better than Europe, both in current Covid statistics and in economic growth statistics. (See “U.S. Economic Activity Picks Up While Europe’s Stalls, Wall Street Journal October 23, 2020).

For instance, the U.S. Composite Purchasing Managers Index (PMI) now exceeds Europe’s by six points. (Numbers above 50 imply expansion, so our 55 signifies healthy expansion and 49 connotes contraction.)

Purchasing Managers Composite Indexes Table

No matter who wins the election next week, 2021 could be another rebirth of the American Dream, if we let it. Don’t let the media or politicians repeat the negative mantra that has made 2020 so hard to endure.

All content above represents the opinion of Gary Alexander of Navellier & Associates, Inc.

Please see important disclosures below.

Also In This Issue

Global Mail by Ivan Martchev
Timing the Big Gold Move

Sector Spotlight by Jason Bodner
Your Life’s an Open Book – and so is Big Money Trading

View Full Archive
Read Past Issues Here

About The Author

Gary Alexander
SENIOR EDITOR

Gary Alexander has been Senior Writer at Navellier since 2009.  He edits Navellier’s weekly Marketmail and writes a weekly Growth Mail column, in which he uses market history to support the case for growth stocks.  For the previous 20 years before joining Navellier, he was Senior Executive Editor at InvestorPlace Media (formerly Phillips Publishing), where he worked with several leading investment analysts, including Louis Navellier (since 1997), helping launch Louis Navellier’s Blue Chip Growth and Global Growth newsletters.

Prior to that, Gary edited Wealth Magazine and Gold Newsletter and wrote various investment research reports for Jefferson Financial in New Orleans in the 1980s.  He began his financial newsletter career with KCI Communications in 1980, where he served as consulting editor for Personal Finance newsletter while serving as general manager of KCI’s Alexandria House book division.  Before that, he covered the economics beat for news magazines. All content of “Growth Mail” represents the opinion of Gary Alexander

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