Tags: elections | midterm | market | buying | correction | investors

View Any Midterm Market Correction as a Buying Opportunity

View Any Midterm Market Correction as a Buying Opportunity
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Thursday, 13 September 2018 02:34 PM Current | Bio | Archive

I love a good steak. But I also love a good, old fashioned peanut butter and jelly sandwich too.

I also know that I wouldn’t like those things together. The taste and consistency of both would be ruined.

I’d like to think most of you have the good taste to feel the same way.

Likewise, I have similar thoughts about keeping political analysis away from company analysis.

With the midterm elections two months away, chances are there could be some changes ahead. The president’s party tends to lose seats in midterm elections, and with the GOP holding a slim lead in both houses, it’s anyone’s guess as to how things may turn out.

That said, the power of incumbency in individual districts is strong. Most seats aren’t competitive, although enough are to flip the house. In the Senate, far more Democrats are up for reelection than Republicans. Many of those Democrats are in states that Trump won in 2016. So, yes, I can say that just about anything can happen, from a GOP pickup in the senate to losing the house at one extreme, to a bizarro 2010 outcome in the other.

But unless Democrats flip both houses of Congress with large enough majorities to carry out an agenda that can override Trump’s veto power, not much is likely to change. Either we continue down the path of keeping taxes low and dismantling the regulatory state, or things stop.

Either is pretty darn good for the private sector and the economy. What causes a lot of short-term uncertainty in the markets is when politicians propose big, sweeping changes.

For instance, during the 2016 presidential race, Hillary Clinton called out drug companies for keeping prices too high (even though high prices are the result of decades of bad legislation). She wanted to pin the blame for shootings on the gun manufacturers (akin to suing Ford when someone driving one of their cars commits a DUI). And she wanted to bury the coal mining industry permanently (making West Virginia the biggest percentage win for Trump in the general election).

That’s a lot of peanut butter mucking up the fine seasoned steak of our economy!

Trump, meanwhile, talked about getting rid of two regulations for every new one (and instead managed to remove over 20 for every new one his first year in office). He also decried the high prices of drugs, but talked about how the industry needed to figure out how to get prices lower.

While the coal industry still struggles today, it’s because of better alternatives on the market, not the boot of the government stamping on the industry’s face. As for the firearms industry? Turns out when you have a president who isn’t interested in keeping people from exercising their Second Amendment rights, people won’t rush out to buy them… so that industry is suffering, albeit for a better reason than government intrusion as well.

In short, politicians can help or hurt specific industries. And just as it’s easier to destroy than create, the market will create and destroy too. Getting out of the way of the market minimizes the bad effects, however.

We’ll see how this plays out—if at all—in the coming elections. But no matter what happens, the economy will likely continue to play out until new tax or regulatory changes come to pass. That’s true even if the Democrats win a supermajority and move to impeach.

After all, during the Clinton impeachment of the late 1990s, the tech bubble was in full swing. Folks knew how to keep their peanut butter and steak separately back then, just as hopefully you do today.

So if your investment strategy ignores politics, good for you. No need to be mired in that morass. But if your investment strategy does include political calculations, it’s time to rethink your strategy.

Think about it this way: No matter what happens in November, the FDA will approve or reject drugs no matter who’s in elected office. New technologies will continue to be developed that have no regulatory framework to box them in. Old, established companies will continue lobbying politicians for proposals designed less to directly benefit them and more to keep competitors at bay.

And if your investment philosophy involves being fearful ahead of elections, well, that’s the worst thing to do of all. Historically, the midterm era in a president’s first term is the worst time for market performance. But over the long-term, sizable corrections of 5-10 percent end up looking like solid buying opportunities.

Many swore off the markets before the 2016 election — only to miss a sizable rally along the way.

If there’s a similar trend this year, no matter who wins, it’ll be another buying opportunity. So stay invested, no matter what your political calculus may tell you. It’s worth it in the long haul, even if it feels a bit like mixing two foods into a gross mixture in the short-term.

Andrew Packer is a Senior Financial Editor with Newsmax Media. He currently writes the Insider Hotline investment advisory, serves as investment director for the Financial Braintrust, and writes the monthly newsletter Crisis Point Investor.

© 2018 Newsmax Finance. All rights reserved.

   
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AndrewPacker
Politicians can help or hurt specific industries. And just as it’s easier to destroy than create, the market will create and destroy too. Getting out of the way of the market minimizes the bad effects, however.
elections, midterm, market, buying, correction, investors
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2018-34-13
Thursday, 13 September 2018 02:34 PM
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