Market Insights Weekly Update: Another Step Up

The election outcome is only one of the many inputs in the markets. Pulling out of the markets can be tempting, but our Investment Team shares why you'll be rewarded as you invest for the long term.
29 November 2022

Elections can cause a swing in the stock markets. Pulling out of the markets can be tempting, but our Investment Team shares why you should stay invested.

(21 November 2022 – 25 November 2022)

Stock indices posted weekly gains, with the MSCI World Index and the S&P 500 up 1.68% and 1.53%, respectively. With its latest weekly result, the S&P 500 has risen more than 12% from a recent low in mid-October. The US Treasury 10-year yield in fixed income was down 14 bps, helping the Bloomberg Barclays global aggregate index close the week at 0.82% gains. MoneyOwl’s 100% equity portfolio was up 1.87% last week, owing to the value factor outperforming growth.

The gains in stocks and bonds from the recent weeks mostly came from market participants having a reduced expectation of more rate hikes as US consumer price index has slowed significantly since peaking at 9% in June. The same expectation is also showing in the US dollar, being little changed overall for the week versus a basket of major foreign currencies.

Wednesday’s release of meeting minutes from the most recent US Federal Reserve policy meeting showed that most Fed officials were inclined to slow the pace of interest rate increases. A “substantial majority” believed that a slowdown “would likely soon be appropriate,” according to the Fed’s early November meeting minutes. In each of the past four meetings, officials have approved rate hikes of three-quarters of a percentage point.

Impact of the Presidency on Stocks

This week we explore the impact of various US presidency on stocks. The anticipation building up to elections often brings with it questions about how financial markets will respond. But the outcome of an election is only one of many inputs to the market. Recent research done by Dimensional Fund Advisors examines market and economic data for nearly 100 years of US presidential terms.

Below is a table summarising the results.

PresidentYearNo. of TermsMaximum UnemploymentAnnualised InflationDeficit/ Surplus as % of GDPAverage GDP GrowthStock Market Return
Herbert Hoover1929 – 1933125.4%-7.0%-3.7%-9.3%-64.0%
Franklin D. Roosevelt1933 – 19453+25.6%2.9%-91.3%9.3%316.0%
Harry S. Truman1945 – 19531+7.9%5.4%-21.4%1.3%152.0%
Dwight D. Eisenhower1953 – 196127.5%1.4%-4.1%3.0%212.0%
John F. Kennedy1961 – 1963<17.1%1.2%-2.5%4.4%41.0%
Lyndon B. Johnson1963 – 19691+5.7%2.8%-5.2%5.3%81.0%
Richard M. Nixon1969 – 19741+6.1%6.0%-5.2%2.8%-16.0%
Gerald R. Ford1974 – 1977<19.0%6.5%-7.1%2.6%41.0%
James Carter1977 – 198117.8%10.2%-9.2%3.3%73.0%
Ronald Reagan1981 – 1989210.8%4.2%-32.4%3.5%185.0%
George H. W. Bush1989 – 199317.8%4.0%-15.2%2.3%73.0%
William J. Clinton1993 – 200127.3%2.5%-5.9%3.9%286.0%
George W. Bush2001 – 200927.8%2.3%-15.4%2.2%-18.0%
Barack Obama2009 – 2017210.0%1.7%-45.8%1.6%166.0%
Donald J. Trump2017 – 2021114.7%1.9%-11.8%1.0%76.0%
Joseph R. Biden2021 – presentSitting6.4%8.8%-15.0%5.7%12.0%

Markets Reward Discipline Over The Long Term

The research shows that the stock market goes up over the long term regardless of presidential election results. Do a search of any US equities index, and you will see a consistent upward march for US equities over the long term, regardless of the administration in place. This is an important lesson on the benefits of a long-term investment approach.

There are undoubtedly periods when a certain presidency ended with the stock market down over the tenure, but these only reflect the short-term fluctuations and investor sentiments. Just because the stock price dropped today, it doesn’t affect the value of the economy over the long term. As a long-term investor, your focus is on the growth and profitability of the companies in the economy, not the day-to-day price changes.

Oil Decline

The price of US crude oil fell nearly 5% in the latest week, trading below $77 per barrel on Friday after data showed that US gasoline stocks rose more than expected. Oil was down more than 17% from a recent high of nearly $93 on 3 November.

China’s Covid Spike

Concern about potential global supply-chain disruptions grew after China reported a surge in Covid-19 infections in Beijing and some other major cities. The rising case count from new Covid variants means that the Chinese government could bring back some of the tight public health restrictions that weighed on its economy earlier in the pandemic.

Boiling Point

Violent protests erupted at Apple’s main manufacturing plant in China, with hundreds of workers clashing with security guards after a month-long Covid lockdown. Tensions boiled over at the Zhengzhou Foxconn campus, operating in an enclosed bubble for weeks. Zhengzhou city will be largely locked down for five days from 25 November after officials said the pandemic had entered a critical phase. The news came as Bloomberg analysts said a swift reopening of China would likely see almost six million people in intensive care.

Vote of Confidence

Malaysia’s new Prime Minister Anwar Ibrahim said he plans to test lawmakers’ support for his leadership with a confidence vote on 19 December, as he seeks to prove to a defiant rival that he commands a parliamentary majority. The 75-year-old leader was sworn in by King Sultan Abdullah Sultan Ahmad Shah on Thursday, capping a tumultuous political career that veered from coming close to clinching the top job on more than one occasion to spending years in prison on sodomy charges. In a country that’s seen off four prime ministers in four years, it’s unlikely to be smooth sailing.

Energy Target

A barrage of Russian missile strikes against Ukrainian energy facilities prompted the country’s grid operator to halt three nuclear power plants and enact emergency blackouts amid below-zero temperatures. Ukraine’s President Volodymyr Zelenskiy described the attacks on energy facilities during freezing weather “as a clear crime against humanity.” Meanwhile, the European Parliament’s website was knocked offline, with a pro-Kremlin group claiming to be behind the attack. The European Parliament had just adopted a resolution accusing Russia of war crimes and calling it a state sponsor of terrorism.

Read more Market Insights here.

Disclaimer: While every reasonable care is taken to ensure the accuracy of the information provided, no responsibility can be accepted for any loss or inconvenience caused by any error or omission. The information and opinions expressed herein are made in good faith and are based on sources believed to be reliable but no representation or warranty, express or implied, is made as to their accuracy, completeness or correctness. Expressions of opinions or estimates should neither be relied upon nor used in any way as an indication of the future performance of any financial products, as prices of assets and currencies may go down as well as up and past performance should not be taken as an indication of future performance. The author and publisher shall have no liability for any loss or expense whatsoever relating to investment decisions made by the reader.

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