Don’t Just Do Something, Stand There” Jack Bogle, founder of Vanguard

Market pessimists rarely have a good election, writes ALAN STEEL

We’re being told by all and sundry that the US Election is unprecedented because of the bitterness of the two sides. In addition,  investment house UBS reports that almost two-thirds of US high net worth investors (with in excess of $1 million of investible assets) have either increased their cash positions or moved heavily to perceived caution, worried about the aftermath of a Democrat victory and the sharp increase in taxes expected.

Isn’t it odd that similar negativity happened four years ago? Polls in 2016 had Hilary Clinton so far ahead it was to be a landslide for them. Didn’t happen of course.  And when they were trumped, eminent economists were unanimous in their expectations for years of recession and stock market underperformance.

Here’s what Paul Krugman, 2008 winner of The Nobel Memorial Prize in Economic Sciences, wrote in the New York Times the day after Trump pipped Hilary on the finishing line….

“If the question is when will the markets recover, a first-pass answer is never. We are looking at a global recession with no end in sight.”

On that election night, Dow Jones Futures (supposedly a guide as to what would happen when US stock markets opened the following day) were sharply down. The main headline on Bad News was Dow Futures Plunge 750 points As Trump Takes Key Battleground States.

So what actually happened the following day? Remarkably, the Dow Jones gained 256 points. And since then, despite all sorts of ‘crises’, including ‘Fiscal Cliffs’ and now Covid (as of 2 November), the Dow Jones, with reinvested income is up 52%, with the wider US index the S&P 500 total return up 58%. 

And for those investors who fancied technology stocks and ‘stood there’, a Tech fund I’ve held for over 10 years is up an eye-watering 160%.

‘Following pessimists’ fears at each US election all the way back to the late 19th Century has rarely been a clever move’

As for the ‘global recession with no end in sight’ the MSCI World Index is up 43%. Mind you, the FT All Share Index total return is still in negative territory thanks, I suppose, to Brexit fears. But those investors who rushed to cash, thanks to the gloomy expert predictions and are still there, won’t be happy bunnies either.

Research by Michael Batnick in America, finds that following pessimists’ fears at each US election all the way back to the late 19th Century has rarely been a clever move. 

US based Mike Williams reminds us that since he entered the investment industry in 1980, when the consensus predicted long term anaemic US economic performance, there have been six US Presidents, both Democrat and Republican. And yet, remarkably, US GDP has since increased over ninefold,  with the Dow Jones Index now 27 times higher.

Warren Buffett recently said that we should never bet against the US economy, whoever becomes President. And added “If you mix politics with your investment decisions you’re making a big mistake.”

Let’s see what happens this time.