The Election Results & Their Impact On The Market
I just want to reach out to you today and talk about the elections. And how they impact your finances. I don’t know about you last night but I was up till nearly midnight, which is about three hours past my bedtime, trying to squeak out every ounce of the election results and looking at the West Coast – Arizona, things like that – that report so late. So, you know, I think the election was, there was a lot there for everybody. Of course, Republicans lost the House. They retained the Senate. And gridlock is what our political system is all about. What people like, what Americans like.
But there’s nothing to get people more fired up than American politics. No doubt. You use to witness this election cycle. You know, you say the word Trump, some people they lose their mind. But Warren Buffet said the best. He says, “You never mix politics with investing because it’s a losing game.” I think the reason he says that is because it confuses us and it brings emotion to investing, which we have to be very careful of.
So I want to deal with more facts than emotions. And the facts are interesting. All the way back to World War II, we’ve had 18 mid-term elections. In all 18 of those elections, the market has gone up 17% from the mid-term elections over the next year. Say that again. Eighteen times with mid-term election, 100% of the time the market has gone up. It’s average from the mid-term election, one year later, up 17%.
Now, let me first put that in perspective so it has some meaning because that sounds like a lot, right? 17% over the next year. Time-out. Market was up almost 10% this year in January. Then we had the corrections happened in October, down about 10%. So we’re up as of the mid-term up 2%. So if we just get back to the 10% range where we were at in the beginning of the year, that’s an 8% move. Let’s just say that takes til the end of the year, for argument sake. So we’ve had 8% move in the market and what history’s telling us that we will average about another 9%, or 17% from the mid-terms.
So what that’s telling us, theoretically, we could have about a 9% total return for the next year. Now, that’s not relative to the kind of market we’ve had, which had averaged in the 15% range for nearly 10 years. I don’t want you to get too excited about that. Yes, in intermediate term, you know, stocks are still a place you want to have assets.
But here are some of my concerns. The biggest driver, or negative, to recessions is interest rates. Throughout history, back in 2007 we had unemployment at 5%, which it had been for about 30 months. Okay, we’re talking 2-1/2 years of 5% unemployment. Today, we are 3.7. Interest rates were at 5.25%. The economy was humming along, like it is today. Guess what happened? Within a years time, the market lost 55%. Interest rates went from 5.25 to around 2% and it really – You have to look at today. Where are we at today?
The economy is doing great. Unemployment is at 3.7%. Right? Everything looks great. The Federal Reserves is now raising interest rates like it did in 2007, into 2008. We’ve went basically zero interest rates to now the 10 years at about 3%. We’ve had three rate increases by the Federal Reserve this year, and each time the market fell. The last interest rate that we had that went up another 0.25 basis point, the market dropped almost 10% in October.
So what I’m trying to tell you is that the old saying, “That history, you know, rhymes, it doesn’t repeat itself but it rhymes,” is the fact we’re kind of in the same scenario. We are in a great economy. The Federal Reserve is raising interest rates. They’re set to raise rates again December 19th, and I would expect more market volatility in that time. So even though there’s a lot of history behind us that shows that we’re going to have further gains ahead – I think relative to where we’ve been, it’s probably not that much. So I want you to protect your portfolio and take care of yourself. And if want to reach out to me any time, I look