2020 has been a year like no other, no contest! And throughout, there have been two news topics that have dominated headlines: the pandemic and the election. Unsurprisingly, these topics have also been a constant focus of conversation as we meet with clients. How will the stock market react? Is my retirement in jeopardy? Is now the time to buy or sell? Let's talk about it.
How Much Do PresidentialElections Matter?
Elections matter immensely. Election years can feel all consuming. But, how much do they matter for your investments?
While presidential election years are contentious, our feelings of instability, anxiety, or fear - no matter your choice of candidate - are not reflected in the market's activity. If we look at a history of market returns over past administrations, Republican and Democrat, what we see is a long-term upward trend.
NorthAvenue client portfolios are built with expected volatility in mind. We ensure that clients have sufficient bond portfolios to support their needs and upcoming goals. In turn, this allows for equities portfolios to be structured toward long-term growth, while in the short term, it may go up, down, and sideways. We have taken great care to fit our clients' investment strategy to their goals, timeline, and risk tolerance and capacity. Our recommendation in an election year, as it is in any other year, is to stay the course.
This interactive exhibit breaks down market and economic data by president as well as other data points, such as which party controlled the Senate and the House of Representatives, unemployment rates, and GDP growth.
A recent article from Vanguard summarizes their findings when comparing market performance in election years vs. non-election years. It concludes that the impact of any given election year has historically proven to be negligible. The market volatility in 2020 can be largely attributed to the pandemic and less so to the election.
8.9% average return during election years (40 periods)
8.1% average return during nonelection years (120 periods)
By November 3rd, Remember To...
The Unusual Economic Impact of the Coronavirus
Many of us are working from home, canceling travel, and limiting visits with friends and family. Our daily lives have changed drastically, and our spending and consuming routines have followed suit. Small enterprise has taken a hit, and millions of Americans are unemployed. But, the market, ever resilient, continues to tick up since March. The S&P 500 has now surpassed its February 2020 high, but how can this be? As one client put it to us, it seems like the market is running on hope.
Is the Stock Market Divorced From Reality? This article states that while no one could have predicted this year's market behavior, investing principles still hold constant even though the market movement has been tumultuous.
When dissecting this question, it becomes important to break down the U.S. market by economic sector. As this article points out:
Sectors that are highly reliant on face-to-face interactions, such as retail trade, hospitality, and transport, have experienced a large shock to activity.
Sectors that can operate relatively well with social distancing in place, such as construction and manufacturing, are less affected.
While the U.S. market has been on the rise, the changes in our consumption and behavior since the original shutdowns have absolutely made a material impact on the market, at the sector level, and has caused a shift in sector weights within our market indices (such as the S&P 500). Sector tilts have played a significant role in the rally in equities over the past few months with outperformance coming from primarily technology and health care stocks, which together comprise over 40% of the broad U.S. market.
At first glance, it can be difficult to wrap our heads around the market recovery over the past 6 months, when millions more Americans are struggling financially from being out of work. But at a closer look, the market has in fact made sizeable shifts based on the events and changes in 2020.
The Ohio State University Retirement Plan Changes
Thank you to all of our OSU employee clients who have promptly made us aware of OSU's retirement plan changes! Chandler's fiancé is also an OSU employee, and so she is personally being made aware of plan changes then sharing them with our team. A number of material changes are being made to OSU's retirement benefit options, to be effective January 4, 2021. We are researching these changes to better understand how we may be able to better assist with managing these accounts, and we will be in touch with each of our clients employed by OSU by the end of the year with our recommendations on how to move forward.
In closing, we thought to share a bit about what has been going on "around the office". Our team get-togethers look a bit different when we're all virtual, but that doesn't stop us from having a good time! Even though there are states between us geographically, we are grateful for the technology that allows us to feel like we can still pop into each other's (virtual) offices.
This is our first team photo! We got creative for our Welcome Party for our new staff, now that they have settled in, and we had a blast playing games and sharing a meal over video chat. We learned that one of us made it to the 2nd round of Family Feud auditions, and someone else was co-captain of their high school synchronized swim team. Can you guess who?
Sending well wishes to all of you, from Your NorthAvenue Team.