Some of us voted red, and some of us voted blue. So many things make the USA a great nation. Among others, our right to vote and exercising that right makes us all red, white, and blue.
There are many reasons why we choose our respective candidates. I won’t delve into the specifics. My job is to interpret various events through a very narrow lens – through the prism of an investor.
The question that typically arises following an election – how will the results impact the market? How might a change in leadership affect my portfolio?
The graphic below reviews various scenarios. For example, between 1928 – 2017 a Republican president has sat opposite a divided Congress for seven years. That is the situation we’ll be facing next year. The average annual return for the S&P 500 Index, including reinvested dividends, has been 12.0%.
We’re shifting from the election to post-election commentary.
For investors, how do stocks perform in the wake of a midterm? While there’s no guarantee stocks will adhere to the historical pattern, the news is encouraging.
The U.S. Bureau of Labor Statistics reported that nonfarm payrolls rose by a strong 250,000 in October. The unemployment rate, which is derived from a separate survey, held at 3.7%, the lowest since 1969.
The nonfarm payroll number has been volatile lately. We get strong numbers followed by weaker numbers.
July registered 165,000, August 286,000, September 118,000, which brings us to October’s preliminary reading of 250,000. Over the last six months, the average up or down change in the payroll number from the prior month has been 103,000 (U.S. BLS data). There doesn’t seem to be much month-to-month consistency.
Seasonal discrepancies that aren’t being accounted for, survey quirks, or some combination may be to blame. What is important, however, is that any noise in the monthly data is generally squeezed out when viewed over longer period.
During the first ten months of the year, payroll growth averaged a healthy 213,000 each month, up from 180,000 over the same period in 2017.
Last month’s update began with the headline, Strong Economic Fundamentals Drives Shares to New Highs. While I acknowledged that October has a ghoulish reputation, September is, on average, the weakest month for stocks (MarketWatch – Dow Jones Industrial going back to 1896).
This year, October, which historically sports a gain (St. Louis Fed data back to 1970), lived up to its supposedly undeserved reputation.
Let’s dive in and dissect October’s weakness, review the near-term outlook, and put October’s pullback in perspective.