At least that is the prediction made by David Woo of Bank of America Merrill Lynch, based on the recent stock market rally. According to Woo, and as reported in this morning’s edition of MarketWatch in years since 1944 when the stock market rose between July 31 and October 31 the incumbent or their party has won the election. In fact, based on the strength of the current rally the stock market is expecting a landslide victory (in electoral votes) for the Clinton ticket. See the graph below:
While it might be a little early to predict the election, let alone what the market may or my not do between now and October 31, I did find interesting the conclusions made based on a Clinton victory. Woo also predicts a split Congress based on current polling. He goes on to say, (emphasis added):
“The combination of a Democratic president and a split Congress likely means gridlock,” Woo said. “If this scenario materializes, the experience of the past six years suggests there is little chance of a major change in the fundamental economic policies of the most important country in the world in the foreseeable future.”
I have always tried to avoid political commentary, other than an analysis of how one party or the other is likely to affect our investments. I’m no dummy, I want the guy or gal that will make my job the easiest! And in this case I agree with Mr. Woo as to the end result of a Clinton victory. The question voters need to answer is whether the predictability of “more of the same” is better than the unknown risks of trying something new?
In a low growth, low interest rate future I would expect that a solid strategy will continue to be to buy stocks with high and increasing dividends. Dividend payouts should continue to grow as companies will have little motivation to invest in capital, and should instead continue to return money to shareholders.
For growth investors, we are looking to move our holdings into sectors that should see secular growth, regardless of who wins in November. For more information on which sectors, I will be hosting a webinar for Kiplinger.com the day after the election. My focus is on long term trends that are bigger than either candidate can influence with their policies.
I’ll be posting more info and how to participate in future posts.
Bill DeShurko 