Election season is here, and it is gearing up to be like every other election cycle we have witnessed in the past 100 years. Although it may seem that this time is somehow different, we urge you to not fall victim to such a simple narrative. The objectivity of the situation begs to differ. The fact that the social unrest of the current election cycle does not resemble previous elections does not mean that previous elections were free of similar occurrences. We simply forget about them. From that standpoint, the ever-changing backdrop on sentiment from all election cycles appears to be a constant. The other constant, however, which attracts notably more media sensation, is taxes and policy changes. The irony is that those topics are things that investors have absolutely no control over. Despite such a fact, there is a fascination with a need to control it, which is impossible. The reality is that the White House has minimal impact to how much we pay in taxes. Think of all the taxes we pay daily that fall outside of Washington’s immediate presidential control: gas tax, property tax, sales tax, taxes on your cell phone bill, excise tax, and much more! The fact that a potential change in leadership at the White House will have an immediate and concrete impact to your finances, due to taxes, is not an objective approach to assessing the election cycle. We are excited to announce that effective this week, we will be covering the election in a more granular approach that will thoroughly assess all critical topics, including taxes.
Stepping away from the election coverage, it is important to briefly cover the events of last week as it relates to economic and market activity. We remain in favor of controlled equity market participation within U.S. and international equity markets. Valuations on U.S. stocks are not as stretched as is advertised, especially when we carefully remove elements of the technology sector. Although such components remain viable allocations, we limit our direct exposure as a means of controlling for excess risk. The economic backdrop of the U.S. consumer remains supportive of aiding the potential upside across the entire market and we believe we are entering a critical inflection point of fundamental well-being rather than momentum driven upside. For those investors questioning the potential for further gains across global equity markets, it is important to understand the basis of the doubt. If it is simply fueled by the notion that stocks have gained too much ground too fast, then there may be legitimacy in the concern. We experienced the fastest upside in history and the idea of a breather, for lack of a better term, may certainly materialize. Do not take that to mean that you should exit equity market participation, however. If 2020 has reaffirmed any known facts about stocks it is that markets move in ways that are not suitable for timing. In fact, they are impossible to correctly time. The best approach to long-term success, in our view, is one of a systematic investment style that is guided by objective decisions. We aim to maintain such an approach indefinitely as we guide clients throughout life’s most important financial events with service and expertise above and beyond client expectations.
The observed economic health over the past few weeks deserves slight attention in this commentary given that the economy will be a hot topic leading into the election. The reality is that a potential leadership change at the White House brings forth a tremendous lag for economic activity, even when policies are changed (12-24 months at minimum). When we consider the eventual path of the economy over the next three years, and when observing the marginal improvements in the labor market, as well as manufacturing, small business sentiment, and overall wage growth, it’s hard to make an objective argument for lagged economic improvements. This is independent of who sits in the White House.
Edison Byzyka, CFA – Chief Investment Officer – Credent Wealth Management
Investment advice offered through CX Institutional, a registered investment advisor.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and cannot be invested into directly. The economic forecasts set forth in the presentation may not develop as predicted.
All return data sourced from Bloomberg.
All other data soured from Bloomberg, through the release of monthly figures from the Department of Labor, Bureau of Economic/Labor Statistics, U.S. Census Bureau, or from the Federal Reserve and any of its affiliated regional locations.
Small Business Optimism sourced through NFIB. Small business hiring plans sourced through NFIB. Consumer sentiment sourced through the University of Michigan.
Earnings data sourced through Bloomberg Intelligence and through Bloomberg’ earnings analysis composites. Interest rate cut/rise probabilities are sourced from Bloomberg’s tracking of futures contracts tied to the Federal Funds interest rate.
Manufacturing data – Markit PMI – Bloomber