What, really, will change come the election? Everything and nothing. The GRAPE issues—guns, religion, abortion, politics and economics—will remain contentious. Dividing Americans into two teams of near equal division will make half the country feel like winners, and half feel like losers.
From an investment standpoint, any change will be gradual, if at all. Hillary Clinton has proposed keeping on Janet Yellen at the Federal Reserve. Donald Trump proposes making changes at the Fed, but Yellen’s term still has two more years to go. Proposals for getting interest rates back up sooner rather than later (or never), are unlikely to go very far.
If you’re already in the investor class, today’s ultra-low interest rates make stocks the best game in town. If you’re looking for the steady, safe returns of bonds, think again. Low rates mean high bond prices and low return expectations going forward.
Even worse, right now the Fed is the only institution in Washington with any actionable policy right now. Fiscal policy has been dead for most of the Obama years, aside from the occasional debt ceiling debate and the sequester. Taxes are marginally higher, and while the annual deficit has narrowed in recent years, the total outstanding public debt is closing in on $19 trillion.
Maintaining the fiscal status quo is a recipe for long-term disaster. Sadly, ringing the alarm bells at this point on the danger of rapidly-accumulating debt makes one sound like the boy who cried wolf. That’s because those who criticized the total debt when it was less than a quarter of the size have been proven wrong—so far.
Yet we’re still on track to deal with rising debt payments (even with low interest rates) that will eat up a large fraction of the federal budget while an aging population draws more on Social Security and Medicare. Those programs alone are on track to eat up nearly the entire government budget within the next 40 years at current trends. Neither Trump nor Clinton have proposed anything that would derail those trends.
So, yes, in broad terms, call me a skeptic. But I don’t see big changes coming no matter who wins. I do, however, see some individual sectors winning or losing depending on the outcome.
For instance, Hillary Clinton’s leftward march against firearms could pose existential danger to America’s firearms companies. This is a candidate who has said that the Supreme Court “got it wrong” on the Second Amendment. The most recent court cases have affirmed an individual right to keep and bear arms.
While many expect a Hillary presidency to mean an immediate change, it will take time to either institute new executive orders or pack the court system with anti-gun judges. That means today’s surging gun sales—according to FBI background check data—will likely continue.
A Trump presidency, on the other hand, while being pro-gun, won’t necessarily make it a focus for change. Rather, it means letting the industry fend for itself. But if fears of major changes in gun laws are off the table, today’s sales may rapidly decline as potential buyers decide to hold off on buying firearms. As with a Hillary presidency, it won’t change on a dime come November or next January. It just means a shift in an existing trend, which may or may not pay out for investors.
The case is the same with the healthcare sector. Our current system is a mess, slapping the worst of government controls onto consumers and making the private sector sort it all out.
While the Obama years have been great for health insurers, most have left the Obamacare exchanges due to high costs and negative returns. Don’t expect anything here to change rapidly, if at all.
Our current ad-hoc system needs a major overhaul, and it’ll need bipartisan support to do so. Things aren’t bad enough for that yet—and any reform we do get may be another step in a bad direction.
Again, that’s another sector-specific area of concern. But from an investment standpoint, it’s just another bump on an extremely bumpy road—but a profitable one.
At the end of the day, governments put their heavy hand on the scales for or against parts of the private sector all the time. Investment opportunities will remain. While some individual sectors may rise or all more than the broad market, staying on the sidelines means missing out on the market’s compounded returns over time. Even with wars, recessions and depressions, just investing in the broad market with an index fund provides real gains of around 8 percent per year over the long term (yes, including the worst-performing years on record).
Stocks might or might not sell off after the election. Following Britain’s surprise Brexit vote in June, markets declined for two days—but traded higher within a week. Be prepared for anything.
Any election-based selloff should be treated as a buying opportunity for the broad market with the long-term in mind. Political events will pass. Sometimes things will go the way you want. Sometimes the opposite will happen. There may be some good short-term trades in some sectors. But don’t forget the long-term potential of the markets.
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 is managing editor of Financial Intelligence Report. To read more of his work, GO HERE NOW.
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