The election is finally around the corner and not a moment too soon. A recent New York times/CBS News poll stated that 82% of respondents were “disgusted by the state of American politics.” Even so, business will continue to move on along with the stock market. Historically, the week before the presidential election the S&P 500 will rally if it is perceived the candidate of the incumbent party will win. Simon Maierhofer, Founder of iSPYETF, LLC, provided the following observation and chart on this years’ election:
“For the first time since 1981, the S&P 500 has declined for nine consecutive days. This sounds worse than it is; the S&P lost ‘only’ 3% during those 9 days…
Tuesday is election day. We don’t know who will be elected president, but the chart below (published by StockTradersAlmanac) plots the average pre-and post-election year performance (30 days before and 60 days after) depending on who won.
Typically there’s a 5-6 day rally leading up to the election, a brief decline after the election (about 5 days) before a more sustainable rally.”
Based on the market activity of the past two weeks, the market appears to be resigning to the Latin term, “status quo ante,” which means “meet the new boss, same as the old one.”
Regardless of who is elected, the task at hand is quite difficult. CNS News reported in February of this year about the slow recovery of the US since the Great Recession. They stated:
“The United States has now gone a record 10 straight years without 3 percent growth in real Gross Domestic Product, according to data released by the Bureau of Economic Analysis.
The BEA has calculated GDP for each year going back to 1929, and it has calculated the inflation-adjusted annual change in GDP (in constant 2009 dollars) from 1930 forward.
In the 85 years for which BEA has calculated the annual change in real GDP, there is only one ten-year stretch—2006 through 2015—when the annual growth in real GDP never hit 3 percent. During the last ten years, real annual growth in GDP peaked in 2006 at 2.7 percent. It has never been that high again, according to the BEA.”
Last week Consumer Real Disposable Income and Real Personal Consumption Expenditure reports were released indicating the continual slow decline in both statistics since late 2014 (see charts below). The holiday season may experience a minimal change in sales from 2015 if consumers remain conservative with their spending.
Consumer spending represents about 66% of all US expenditures and their impact on the economy is the single largest influence on economic growth. Not surprising then was the report released two weeks back on GDP growth that is indicating possibly a historic 11th straight year of sub-3% annualized growth (see below).
Last week I spoke before the employees of Haws Corporation in Reno (they basically invented the drinking fountain) to discuss the status of the US economy and investment strategies for 2017. A question posed from the audience is, “what new stimulus can unleash the economy out of its stagnation?” For the past eight years, the approach was the Keynesian economics of massive deficit spending and Federal Reserve stimulus campaigns that failed to kick-start the economy into high gear (or any gear). However, restrictive legislation neutralized the impact of the stimulus dollars. Both Janet Yellen and Ben Bernanke, Federal Reserve Chairpersons, stated at almost every Congressional Hearing that “no amount of monetary policy can make up for poor fiscal policy.”
Translation: no amount of our money can offset your anti-business legislation.
Going into the next week with another key potential pivot point for American history is the election of thousands of politicians across the nation who will have the opportunity to reverse the direction of our economy. Nonetheless, the undisputed resilient strength of America is the innovative and entrepreneurial spirit that will prosper with or without a pro-business government.
WHAT DOES THIS MEAN TO ME?
Elections come and go, along with their promises of restoring America. Americans restore America. No doubt there are significant responsibilities of the Federal and state governments that should not be the role of private enterprises. However, the past eight-year massive Keynesian experiment of funding trillions of dollars through government programs has not produced a sustainable growing economy. In fact, the very demographic group that was supposed to experience the most benefits from these programs have the exact opposite. Americans need to be financially self-reliant on their businesses or contributions to their employer. The best strategy for improving one’s financial status is by excelling in your participation of creating a product of need or want whether it’s your company or another. The result will be greater personal satisfaction, a fiscally stronger nation, and leader in the new wave of innovation that improves people’s lives.