Markets

Green Fisher: “Analyze in peace!”

In the fourth quarter of the 2020 stock market year, investors will increasingly be confronted with political headlines. The TV duel between Donald Trump and Joe Biden had developed into a wild mud battle, Trump then fell ill with Corona and caused new controversy with his tweets.

Political theater 2020

In the fourth quarter of the 2020 stock market year, investors will increasingly be confronted with political headlines. The TV duel between Donald Trump and Joe Biden had developed into a wild mud battle, Trump then fell ill with Corona and caused new controversy with his tweets. The political theater is in full swing and not much will change until November 3rd, the date of the US presidential election. Investors are therefore well advised to concentrate on the essentials during this troubled phase.

No political preference

The majority of political debates can be assigned to the field of sociology. This does not represent a major driver for the development of the broad capital markets. In fact, it can be clearly seen in the long-term US market history that stock markets have never developed preferences for political ideologies. Under both the Democratic and Republican presidencies, US markets have done sometimes well and sometimes badly. The bull market from 2009 provides a good example: It began in the first term of office of Democrat Barack Obama and continued for three more years in the first term of office of Republican Donald Trump – until COVID-19 brought this development to an abrupt end. Before Trump took office, US GDP rose at an annualized rate of 2.38 percent in the twelve previous quarters, and in the twelve quarters after his election up to COVID-19 this value reached 2.50 percent. Almost identical!

In a phase of economic growth, the markets don’t care who is at the helm. Then no president or no political party will be able to break this fundamentally positive trend. At most, the political influencing factors manage to generate short-term fluctuations in mood among market participants (keyword: legislative risk). Furthermore, in the long-term picture, the stock markets develop a wonderful immunity to political theater. They increase sustainably and thereby reflect the continuous growth of the world economy, across all crises and economic setbacks.

Pragmatically to success

This fundamental approach can help investors in the current phase to experience the US election campaign without emotion. No one can say for sure who will win the race for the US presidency. The only thing that is certain is that the next four weeks will be emotionally exhausting. Investors are therefore well advised to block out the political noise as much as possible. Markets approach this topic with pragmatism: They do not care about people, emotions or social problems in the long term. This results in superior long-term returns compared to alternative asset classes. How much individual investors participate in this ultimately depends on how much one can adopt this useful pragmatism as part of one’s own investment strategy.

Conclusion

Consider the political headlines for the next four weeks with the following in mind: Individuals and parties are not exerting any lasting influence on long-term stock market returns. With regard to your own investment goals, it is therefore easier to maintain the necessary pragmatism in future investment decisions. Because in the long run it will be almost irrelevant to your equity investments whether or not Donald Trump can stay in the White House.

You can request the current capital market outlook from Grüner Fisher Investments free of charge at www.gruener-fisher.de.

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