Wealthspire Advisors 2020 Q3 Review: The Gorillas are Not Bigger Than the Room

A Full Troop of 800-Pound Gorillas: Elections, Taxes, COVID-19, and the Markets

In this letter:

  • Without statistical support, political party and tax regime changes have not translated to discernable market performance.
  • Global fiscal and monetary stimulus during COVID already far surpass what the world saw during and after the Great Recession.
  • Equity and credit markets domestically and abroad continued to shrug off headlines, helping recoup some if not all of the losses from earlier this year.
  • Anchored short-term interest rates helped investment grade fixed income yet another quarter.
  • For those interested in an election-oriented discussion around financial planning, we are hosting Charles Schwab’s VP of legislative affairs for a virtual non-partisan discussion on the 2020 election on Tuesday October 20th.

We habitually write about the folly of investing based on headlines. Shocks, pandemics, geopolitical upheaval, elections, and the perceived fallout of the aforementioned rarely follow a pre-conceived formula. One does not have to look back far in our history to see how those predictions miss the mark (e.g. last election, initial Brexit news, the Fiscal Cliff, a U.S. downgrade back in 2011, the Greek crises, etc.). All that said, sometimes it is just hard to avoid all of the 800-pound gorillas in the room. It seems like forever ago that we put together a summary right before and right after the last election about what market consensus perceived to be the likely reactions, and what actually transpired. Let us say that the consensus fared poorly.

Now to some statistics (or lack thereof) surrounding upcoming elections. The main issue, and most statisticians would agree, is that our country is too young. There is not a large enough sample size to say what mixture of Democrats and Republicans in the White House and Congress yield better investment returns. That also goes for changing tax regimes. Stealing from something we wrote four years ago; the U.S. did not have income taxes until 1861. They lasted for about a decade, and then taxes again disappeared for over 20 years. At one point they were even declared unconstitutional by the Supreme Court in Pollock v. Farmers’ Loan & Trust Co., 1895, only to come back with the 16th Amendment in 1913. All of this means that we cannot reasonably look at the past for statistical guidance for an average or, a term quite rare these days, for what is “normal”. What follows are more curiosities to help answer concerns than a statistical study.