Economies and Markets After Elections Past… and the Weekly Update

This Week's Quote:
“...Well, all the President is, is a glorified public relations man who spends his time flattering, kissing and kicking people to get them to do what they are supposed to do anyway.” ~Harry S. Truman


J.L. Davis Thoughts This Week:

If we were to add to Mr. Truman’s quote, we’d say, “...like investing.” Our view is that the office of President, as well as the majority party in the House and Senate, is essentially irrelevant to investment results. We think markets respond to corporate earnings generally and the broad economic trends that produce, or don’t’ produce, those earnings.

That said, looking at historical returns in various political scenarios can be fun. For example, Mr. Truman’s time as President coincided with an average annual return of 8.2% in the S&P 500 (April, 1945-January, 1953). That was just below the 8.9% average annual return seen by all Democrat Presidents since John F. Kennedy but before Barack Obama (see below).

Not bad, but not strong as the 11% average annual return Republican George H.W. Bush experienced. Or Eisenhower, Ford and Reagan’s over 10% average yearly returns during their White House tenures.

After 12 consecutive Republican White House years, Bill Clinton’s Presidency saw a 15.2% average S&P 500 gain. Our current President has also seen the same index increase annually an average of more than 15% through last Friday (sans dividends).

JP Morgan’s Dr. David Kelly, in his just-released missive, “Investing in the Wake of the Election” cites Standard & Poor’s in looking at market performance under various combinations of political party control. His opinion: “…on average, the economy has demonstrated an ability to grow and the stock market has been able to rise regardless of the composition of government….” You can get a copy of the JP Morgan report by replying to our email this week. We think it’s worth reading.

The point to all this is a simple one to long term investors, regardless of one’s political point of view, in our opinion: Stay positive and alert for opportunities. Stay invested for the most part. Most importantly, stick to your plan.

http://static.seekingalpha.com/uploads/2012/4/1/saupload_14opchart.full_.jpg
http://finance.yahoo.com/echarts?s=%5EGSPC+Interactive#symbol=^gspc;range=20090122,20121109;compare=;indicator=sma(250)+volume;charttype=line;crosshair=on;ohlcvalues=0;logscale=off;source=undefined;
http://politicalwire.com/archives/2012/10/21/a_booming_stock_market_under_obama.html


Market Week: November 12, 2012

The Markets

Much as Sandy and an early winter storm delivered a one-two punch to northeastern states, equities were hit with back-to-back triple-digit losses in the Dow industrials. Whether motivated by election results, fear of gridlock in the run-up to the so-called fiscal cliff, a grim forecast for Europe's economy, the beginning of year-end tax maneuvers, or some toxic stew of them all, investors sold off equities around the globe. It was the third consecutive week of losses for the Dow. Along with the S&P 500, it's now down almost 6% from its September year-to-date high, while the Nasdaq and small-cap Russell 2000 are both down more than 8% in the same time. Meanwhile, gold recovered all of the previous week's losses and then some, ending at $1,730 an ounce.


Last Week's Headlines

• With President Obama's reelection and continued leadership by the respective parties currently in charge of the Senate and the House of Representatives, implementation of the Affordable Health Care Act is expected to continue, as are battles over the same issues that led to the tax increases and spending cuts scheduled for January 1.
• A worsening European economy this year is hitting even its strongest member nations and will cause many of them to miss their budget-cutting targets, according to a semiannual report from the European Union's executive body. The report forecast that gross domestic product in the EU will fall 0.3% in 2012 and grow by only 0.4% in 2013 (slightly less in the 17-member eurozone). Even the German economy is expected to slow from 3% last year to 0.8% this year and next, finally increasing by 2% in 2014. Unemployment is expected to average just under 11% for the 27 EU countries and just under 12% in the eurozone through 2014.
• Despite street riots, the Greek parliament passed €31.5 billion worth of fresh austerity measures and a budget to implement them. Both are necessary to qualify for the country's next installment of bailout funds and will be reviewed by the region's finance ministers this week.
• A 3.1% increase in U.S. exports helped cut the country's trade deficit in September to its lowest level since December 2010. According to the Commerce Department, the deficit fell to $41.5 billion from $43.8 billion in August, and was 6.6% lower than a year earlier.
• As the Chinese Communist Party met to prepare for the transition to new leadership for the next decade, the current leaders said they expect the country to meet its goal of 7.5% economic growth in 2012.
• The Institute for Supply Management's index of the U.S. services sector showed growth for the 34th straight month, though the 54.2% reading for October was slightly lower than the previous month's 55.1%.


Eye on the Week Ahead

In addition to more earnings reports, manufacturing, retail, and inflation data will shed light on the state of the U.S. economy. Also, global investors will assess Greece's bailout status and whether new Chinese leaders will be likely to pursue reforms aimed at encouraging more domestic consumption there. The European Commission's estimate of Q3 economic growth will be released Thursday, and options expiration at week's end could mean some volatility as it approaches.

Key dates and data releases: wholesale inflation, retail sales, Federal Open Market Committee minutes (11/14); consumer inflation, Empire State/Philly Fed manufacturing surveys, European Q3 GDP estimate (11/15); industrial production, international capital flows, options expiration (11/16).


Data sources: Includes data provided by Brounes & Associates. All information is based on sources deemed reliable, but no warranty or guarantee is made as to its accuracy or completeness. Neither the information nor any opinion expressed herein constitutes a solicitation for the purchase or sale of any securities, and should not be relied on as financial advice. Past performance is no guarantee of future results.

The Dow Jones Industrial Average (DJIA) is a price-weighted index composed of 30 widely traded blue-chip U.S. common stocks. The S&P 500 is a market-cap weighted index composed of the common stocks of 500 leading companies in leading industries of the U.S. economy. The NASDAQ Composite Index is a market-value weighted index of all common stocks listed on the NASDAQ stock exchange. The Russell 2000 is a market-cap weighted index composed of 2000 U.S. small-cap common stocks. The Global Dow is an equally weighted index of 150 widely traded blue-chip common stocks worldwide. Market indexes listed are unmanaged and are not available for direct investment.

Lee and Jeremy Davis are Registered Representatives of, and Securities & Advisory Services sold through, Multi-Financial Securities Corporation, Member FINRA/SIPC
J. L. Davis Financial Corporation is not affiliated with Multi-Financial Securities Corporation. California Insurance License #0780210 (J. Leland Davis)

Prepared by Lee Davis** and Broadridge Investor Communication Solutions, Inc. Copyright 2012