Advisors Can Help Clients do P-Q Pre-Election Investment Planning

Advice to the Advisors

2020 campaign, Sheaff Brock, history of presidential elections and stock market, pre-election investment planning

Advisors Can Help Clients do P-Q Pre-Election Investment Planning

Financial advisors are usually warned against talking about politics with their clients. Not everyone agrees. In “Wealthy Investors and the Election: a Guide for Financial Advisors in 2020,” Spectrum Group reports that, of the 1,054 investors they’d surveyed, at least a third expected their advisors to talk to them about the financial implications of the upcoming presidential election, by way of helping them do some pre-election investment planning.

Sheaff Brock Managing Director and Chief Investment Officer David Gilreath finds himself in the Spectrum camp, eager to tackle investor fears and expectations regarding the upcoming election. Addressing the No. 1 question currently on investors’ minds (What if the incumbent party loses the presidency???), Gilreath reviews market trends (as indicated by S&P 500 returns) in election years going all the way back to the 1930s.

Wryly quoting Mark Twain (“History doesn’t always repeat itself, but it often rhymes”), Gilreath uses three charts to demonstrate how advisors might guide discussions of pre-election investment planning using the P–Q thinking model:
In classical logic, a connection is made between two statements, implying that if P (the proposition) is true, then Q (the next statement) is also true. 

• If Sarah works overtime, she’ll be paid time-and-a-half.

• If I study, then I’ll get good grades.

S&P 500 annual performance, partisan control, pre-election investment planning

Clients should find this chart encouraging, Gilreath observes, as it traces positive investment results for the past half-century under all three post-election scenarios (unified government, unified congress, split congress).

This time around, should a democratic sweep scare the markets? Probably not, is the conclusion of LPL Research, looking back at periods of time since 1951 when Democrats controlled both the White House and Congress.

Sheaff Brock, S&P 500 Index, Democrats in White House & Congress, pre-election investment planning

If Strategas Research Partners are right again this time around, Gilreath observes, by Halloween night 2020, pre-election investment planners should have their if-then answer well ahead of the day after the big election. (Strategas predicted the 2016 election results at a time when Trump was way down in the polls, Gilreath observes). The Strategas “secret”? S&P 500 performance during the months of August, September, and October preceding an election. Historically (between 1936 and 2016), stocks have sold off ahead of an opposition party win, but have risen in price before an incumbent party outcome.

S&P 500 performance with Incumbent Party Outcomes, Pre-Election Investment Planning

In classical logic, if the P statement, a given fact, is true, a new Q reality may be deduced. Will history “rhyme” again? Whatever the answer, financial advisors can help investors take a pro-active approach to pre-election investment planning! 

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