Last Tuesday’s elections are determining the composition of the U.S. House of Representatives, a third of the Senate (runoffs aside), and 36 governorships. Politically, this feels like a divisive time, and accusations and dire warnings from both sides of the aisle are getting increasingly hyperbolic. How can we confidently invest or stay invested in markets at a time like this?
There was never a time where politics didn’t feel at least a little divisive in America. Recent events have us on high alert, but there are a lot of stories in the history books equally as shocking. In 1856, a Senator was beaten with a cane until he fell unconscious on the floor of the Senate. A few years later, there was an all-out brawl in the House, including more than 30 members. Even as recently as 1988, a Senator was arrested and carried onto the floor feet-first by the Sergeant-at-Arms to comply with quorum rules. The rise of aggressive algorithms on social media probably does contribute to political divisiveness today, and we don’t mean to minimize the recent events and violence in our political process. However, there has never been a period of time where politics have felt completely constructive and settled.
There has never been a period of forward-looking geopolitical security either. Throughout the Cold War and even today, we have the omnipresent threat of nuclear conflict. Events like the Bay of Pigs invasion are largely forgotten today because they were resolved, but there was no guarantee at the time that things would work out at all. All recorded history has been defined by the rise and fall of great powers, and these tectonic shifts in influence and control continue as countries like Russia try to stay relevant and countries like China aspire to become more dominant throughout the world.
We’re not going to solve the world’s problems today, but we can reassure you that despite all the uncertainty in the past, the markets have persevered — through world wars, inflation, recessions, and everything else that happened in the twentieth century. Every time concerning news comes out, people wonder if “this time is different.” Each time is different in its own way, but thus far the world, the economy, and the financial markets have always persevered in the long run.
The good news is that there is no evidence suggesting the political party in power reliably has any influence over the future trajectory of the markets. The conventional wisdom is that populist candidates are negative for the markets and more conservative candidates are market-positive. We think it’s more likely that different ideologies benefit different types of companies (for example, a Democratic sweep might be positive for green-energy companies while Republicans might be good for coal). Also, there are elaborate checks and balances through the legislative process and via the judiciary, so even with a large majority, one party can’t have overly dominant influence.
One theme we always come back to is diversification. At Telarray, we don’t have to spend any time worrying about which stock or sector might outperform based on a particular election outcome because we are broadly diversified across countries, currencies, and investment factors. Our style of investing has exposure to virtually every sector and countless companies throughout the world. Concentrated investing can pay great rewards, but it can also result in great disappointment if things don’t work out the right way. Harry Markowitz’s statement that “diversification is the only free lunch” rings truer today than ever.
Gene Gard is Chief Investment Officer at Telarray, a Memphis-based wealth management firm that helps families navigate investment, tax, estate, and retirement decisions. Ask him your questions or schedule an objective, no-pressure portfolio review at letstalk@telarrayadvisors.com. Sign up for their next free online seminar on the Events tab at telarrayadvisors.com.
