Every four years the same question comes up: "What impact will the presidential election have on the financial markets?"
By and large, our nation's economy has always had a more powerful impact on the financial markets than its politics. The federal reserve has been playing an increasingly larger role in steering our nation's economy than the White House. Thankfully, Alan Greenspan has steered the economy on a steady course while helping to keep a tight lid on inflation. In this regard, I believe investors tend to place too much emphasis on who is in the White House or which party currently controls Congress.
For example, many investors were concerned about a Clinton victory in 1992, yet the Dow Jones industrial average nearly doubled in his first four years in office. While some would credit the president for the fine performance of our economy, an even-handed federal reserve, the absence of any shocks to the economy such as an energy crisis, and the outstanding performance of corporate America deserve the bulk of the credit.
On the other hand, campaign rhetoric and various proposals can have an impact on individual sectors of the market. For example, health care reform proposals have placed pressure on drug stocks recently just as they did for a brief time in 1992-93 when similar proposals were made. These stocks later staged a powerful recovery. Environmental stocks were thought to be a great choice under a Clinton-Gore victory scenario, but when promised environmental reforms fizzled so did the environmental stocks amidst deteriorating industry fundamentals. Tobacco stocks surged with the election of a Republican Congress in 1994 because of the perception that Republican leaders would brunt attacks on the tobacco industry. Since then, tobacco stocks have tumbled with the continuing threat of regulation and large-scale damage awards.
My best advice for investors is to stay the course. Do not make large adjustments in your portfolio in anticipation of election results. Earnings are the magnet that pulls prices higher in the long run. And American companies that are well managed should continue to perform well in the long run, no matter who is occupying the White House.
(Carol Perry, a Northern Nevada resident since 1983, represents the firm of Edward Jones Investments in Carson City.)