Nevada State Bank’s Post

Transcript

I'm Anthony Valeri, Director of Investment Management. The presidential election is finally behind us, But before we extrapolate a strong first few days in the stock market, it's worth taking a look back at prior presidential elections and stock market performance, as well as what policy may or may not imply for U.S. stocks going forward. Let's take a look at economic growth as measured by GDP, and you'll see that it's been fairly consistent under both Democratic and Republican presidents. The Republican average has been influenced by presiding over a greater amount of economic contractions, including the Great financial Crisis in 2008 and the sharp drop during COVID, which can be attributed to poor timing. Presidents can get the misfortune of capturing an economic already economy rather already in decline or benefit. From the start of a new expansion. When it comes to total return in the stock market, you'll see that stock market performance, when measured by the average annual gain by presidential administration, is also fairly consistent. President Nixon presided over the early 1970s severe bear market and George W Bush presided over 2 severe bear markets, one following the dot com bubble and then of course, the Great Financial Crisis. President-elect Trump's first term saw a strong start as well, but that ultimately carried over into above average gains during his term. Still, his gains were roughly in line with other administrations that saw good performance, and we wouldn't extrapolate that necessarily for this particular administration. Let's take a look at earnings, the true driver of stock prices over the longer term. Here, too, we see fairly consistent and positive earnings growth with two outliers, one around 1990 and the other the decade of the 2000s, which was bookmarked by two severe recessions and profit corrections. Here, too, timing can play a role, as President Obama and Biden started their terms just as a strong earnings rebound was underway following a recession. Domestic stock markets have reacted firmly positive, as we just mentioned, in the first few days following president-elect Trump's victory. But one of the big questions about the Trump administration is the subject of tariffs and whether campaign rhetoric is ultimately turned into actual policy. A look back at the first set of tariffs shows that international stocks actually outperform domestic stocks leading up to the first set of tariffs and then began to underperform U.S. stocks. You'll see that as the red and white lines. Grows greater initially in the first Trump term, while the blue line U.S. stocks began to catch up as tariffs were implemented. However, in the late in late 2018, U.S. stocks gave up that performance advantage as concerns shifted towards Federal Reserve rate hikes. Stock investors became concerned that the rate hikes might have gone too far. It's a reminder to investors to stay diversified, and that risk can come from anywhere. US outperformance subsequently resumed on the prospects of stronger earnings growth in the US over the course of 2019, and we wouldn't attribute this simply to the administration. That was in power. But policy doesn't always equate to investment outperformance. The approach of the Trump and Biden administrations to energy were very different. But the performance of the domestic energy sector fared substantially better under Biden than it did under Trump, perhaps a contrary result than many expected. Again, a reminder that other factors can and usually do drive investment performance. While domestic stocks have outperformed their international counterparts in the immediate aftermath of the US election, we would not abandon a diversified approach. president-elect Trump's campaign promises to reduce corporate tax rates, lower regulation, and add tariffs to overseas goods has sparked a surge in domestic stocks. U.S. stock valuations have further increased a wide valuation disparity over their international counterparts, and we would be wary of chasing this trend. Continued fiscal stimulus in the US and persistent budget deficits could create risks in the longer term depending on what policy is ultimately implemented. For this reason, we recommend investors maintain a diversified investment portfolio and not chase short term election results. I'm Anthony Valeri. Thanks very much for joining. We'll speak to you again soon.