LPWMG

The election is now less than a week away. We think the market is anticipating a Trump win and the republicans to control at least the senate. We have found it historically very difficult to predict elections and are simply reading what we think the market is expecting.

The market likes certainty and the good news with the election coming soon is we get certainty back. However, we are not losing focus on the high valuations of the market in certain areas and the risk of inflation rekindling.

Historically, the markets do not favor a political party. It appears the market and investor sentiment are favoring a Trump election to some degree. This year’s strong market move is not consistent with historical patterns. During election years the market has averaged about a 6.7% return, with the S&P 500 up over 20% this year is a little surprising. The year after the election has also historically been up a subpar 6.7% average return.

Recessions have occurred frequently the year after an election, you could argue the consumer feels like they have already been in a recession for several years due to the cumulative effect of inflation. Expecting a more challenging market next year, regardless of the elected party is very likely.

We think it is very important for investors to not let their political views interfere with sound investment judgement. We have personally seen investors from both sides in defeat make poor investment decisions because their candidate loses. The most important factor to consider is the actual fundamentals.

Clearly, each candidate will have their biases to push certain sectors of the economy. We have a few thoughts to share but have many more. The major wildcards we currently see as opportunities, with a Harris win, to continue push for clean energy and electric vehicles. However, if Harris allows the Trump taxes to expire in 2026 it will make seeing any after-tax earnings growth very challenging. With a Trump win, if he can get his new “bring back manufacturing to the U.S. tax incentives” approved, a very pro-growth small company policy, could result in higher inflation. It seems like Elon Musk wins regardless…lol. We see the smaller companies and more cyclical stocks doing very well.

We have our playbook, and we will certainly expect some surprises that we will deal with. We want to emphasize that we will continue to build portfolios on strong and durable fundamentals.

As we have discussed, government spending has been unusually strong in front of the election, so a slowdown in spending is very likely to occur and become a concern for the market after the election. It would not surprise us to see a continued slowing in the economy or a mild recession in 2025. We believe we still have inflationary cinders that are still hot that could reheat, which would not be well received by the bond market.

We view the election and the impact of potentially changing government policy as an opportunity. Just to reiterate, we are confident in our portfolio positioning and will make opportunistic adjustments should they present themselves.

Our Best Always,

Bob

Robert O'Braitis
CEO
Chief Investment Strategist