With the election tomorrow, I thought it would be timely to look at whether the stock market does better with a Republican or a Democrat in the Oval Office. It would be rational to assume that the stock market would perform better with a Republican since they are thought to be more business friendly. A recent survey by Fidelity found that 74% of investors think that which party controls the government has an effect on stock market returns.
In a Nutshell
- Stocks became favored again relative to bonds as markets have decided that the best (worst?) days of easy monetary policy are in the rear view mirror.
- Some of the best performing stocks for the year sold off during the quarter. It’s too early to tell if this is a short term reversal or the beginning of another change in leadership. It could be a result of investors taking profits ahead of the election and expected interest rate increases over the next year.
- Government and investment grade bonds were essentially flat for the quarter, acting as a drag for conservatively invested accounts.
- International stocks, especially emerging markets such as China and Brazil, continue to recover.
Brexit was just another ‘brick in the wall’ of worry stocks continued to climb. (Cue the Pink Floyd)
In a Nutshell
- Brexit shocked world stock markets for a few days at the end of June but most quickly rebounded and ended the quarter with a positive gain.
- Commodities continued the rally which began in the first quarter and is now a leading asset class.
- Interest rates dropped again this quarter, continuing the 35 year bull market in bonds and providing another opportunity for homeowners to refinance.
- Stocks paying substantial dividends continue to be popular among investors as bond yields continue to drop.
Academic research has found 3 strategies, or factors, that have historically outperformed the S&P 500. The first is that smaller companies (aka small caps) tend to outperform larger companies. The next factor that excels over long periods is value. The third factor, price momentum, will be covered in a future post.
Value Investing – If it’s Good Enough for Warren…
Value investing is one oldest methods for investing in stocks. Benjamin Graham, known as the father of value investing, wrote one of the first academic textbooks on value investing with his seminal “Security Analysis”, first published in 1934. He followed that up with “The Intelligent Investor”, a classic bestseller which Warren Buffett has called, “By far the best book on investing ever written.” [Read more…] about 3 Investment Strategies That Beat the Market (Pt 2)