The first debate is over, and President Biden’s faltering performance prompted much hand-wringing among Democrats. How likely is it that former President Donald J. Trump will win the November election?
As a citizen and as a voter, I care about this question. But as an investor, I’m indifferent — or at least I’m trying to be.
Fundamentally, the markets don’t care who wins. Stocks rose early Friday after a favorable inflation report only to give up a little ground later, while the odds of another Democratreplacing Mr. Biden jumped on PredictIt, an election prediction market. Even with this turmoil, financial markets seem utterly unruffled by political developments.
Momentous as this election may be, stocks did well under President Trump and they are doing well under President Biden — not necessarily because of any of their policies.
The harsh truth is that the market is amoral and largely apolitical. Most people have been better off financially if they disregarded politics entirely.
Staying in the Market
Consider three hypothetical investors with different views about politics and finance, in a study by Jeff DeMaso, editor of The Independent Vanguard Adviser, a newsletter focused on Vanguard funds.
Each investor started with $10,000 at the beginning of 1977. They were free to move their money between the Vanguard 500 stock index fund and the Vanguard Cash Reserves Federal Money Market fund.
One person held the Vanguard stock fund only when a Democrat was in the White House. Another trusted the stock fund only during Republican administrations. The third was apolitical in her investing life and held the Vanguard 500 fund at all times.
Here are the results for each portfolio from January 1977 through May 2024:
Note that during that period, Democrats and Republicans held the presidency almost the same number of years: 24 for Republicans vs. 23.5 years (and counting) for Democrats. So someone who invested only during Republican presidencies had a slight time advantage.
But the market has done better under Democratic presidents than Republicans — not just since 1976 but all the way back to 1900.
Don’t make too much of that. There haven’t been enough presidencies to make a statistically valid conclusion. What is clear is that stocks prospered under both political parties, and that by staying in the market through 12 presidential terms, the apolitical investor benefited from the marvelous effects of compound returns with reinvested dividends in a generally rising market.
But remaining in the market isn’t always easy. Despite the market’s upward tendency, big declines happen with disturbing regularity, but at unpredictable times. It doesn’t seem to matter who the president is.
For example, from Oct. 13, 2007, until March 13, 2009, during the financial crisis spanning the Bush and Obama administrations, the S&P 500 lost about half of its value. In February and March 2020, at the onset of the coronavirus pandemic in the last year of the Trump administration, the S&P 500 fund fell more than 30 percent. And in the nine months through September 2022, as the Federal Reserve raised interest rates to combat inflation in the current, Biden administration, the S&P 500 fund lost about 24 percent.
Sometimes, the S&P 500 ended up lower during a presidential administration than when it started. That happened in the Nixon, George W. Bush and Hoover administrations. Avoiding stocks during those entire presidencies would have been a good move, but then you would also have had to know when to get back into the market. Alas, no one knows in advance when the market will rise or fall, especially not the Wall Street gurus who make predictions every year.
And Yet
There are many other valid ways of investing in an election year. I don’t recommend them, but I follow them.
I’d place most of them under the rubric of market timing — investing jargon for buying and selling at opportune moments — a practice that can be immensely profitable for those capable of doing it reliably. Most people, including market professionals, can’t manage that feat consistently, however. I certainly can’t.
Even so, there’s an enormous cottage industry on Wall Street devoted to predicting whether the overall market, or particular sectors, will rise or fall.
Here’s a thumbnail summary of the current wisdom, such as it is. It’s based on the assumption that the two current candidates continue their campaigns.
The consensus is that as long as there’s no landslide victory for either party — so neither controls the White House and both houses of Congress — the markets will be fine.
Still, under those circumstances, if there’s a Trump victory: Expect more and higher tariffs, which could disrupt trade and be inflationary, and hurt “the consumer discretionary, industrials, and information technology sectors,” in the view of UBS, the financial services company. Mr. Trump would probably manage to lower taxes and increase the budget deficit, stimulating the economy but, again, goosing inflation — which could lead to higher interest rates. There is likely to be less regulation, with sectors like fossil-fuel energy and financial services benefiting.
If Mr. Biden is re-elected but Democrats don’t control Congress, the status quo continues. Expect greater regulation (though the Supreme Court on Friday limited the executive branch’s regulatory powers) and higher taxes for wealthy people and companies than under Mr. Trump, along with executive orders aiding “companies within industrials, materials, and utilities focused on renewables and energy efficiency,” according to UBS.
A landslide giving control of both the White House and Congress for either party would be unexpected and could disrupt the markets. Mr. Biden might be able to achieve legislative feats that have been out of reach. The probability of tax increases on the rich and on corporations rises. The chance of positive outcomes for clean energy companies increases, while banks and fossil-fuel companies will have a tougher time, or so the Wall Street thinking goes.
A Trump landslide would be the most unsettling outcome from a purely financial standpoint because he could impose policies that might radically change the way business has been done, and life has been run, in the United States. The New York Times is covering the plans underway for a second Trump administration. I won’t get into details here.
Neither a Trump landslide — or a Democratic one — has “been priced into the markets,” Anthony Saglimbene, chief market strategist for Ameriprise Financial, said in a briefing for journalists. “If we wake up on Nov. 6 and it looks like we have a one-party kind of control of Congress, I would expect volatility to increase.” But, he added, the markets are likely to recover rapidly. History tells us, Mr. Saglimbene said, that the market will refocus on interest rates and corporate profits “once it moves past the election cycle.”
What if another Democrat runs and wins? The same logic holds. Some policies will change, the markets may initially be flustered, but the search for profits will triumph in the end.
A Caveat
“This time is different” is rarely true in investing. But every so often, things really are different.
My assumptions about the markets and investing are based on a central premise: that the legal, economic, social and political system that has prevailed until now will continue, with some evolution but without a major break, well into the future. Mr. Trump has promised to “undo foundations of American democracy and to rule as authoritarians in other countries have,” as my colleague David Leonhardt has written.
Hedging against that possibility isn’t merely a financial issue, of course. Holding some gold, which I don’t do now, might be wise if the foundations of American democracy are shaken. Holding stocks and bonds from other countries in low-cost index funds, which I always do to further diversify my portfolio, might be urgent in a U.S. crisis. Holding extra cash might be a smart move.
But, oddly, because the United States is so important globally, past crises here have shaken up foreign markets, too, and in times of trouble, where are you going to go for safety? Invariably, since World War II, it’s been the United States, strengthening U.S. Treasuries and the dollar, not weakening them.
Up to a point, that dynamic can be expected again. But only up to a point. I’m hoping we won’t find out where that point is.
So I’m not claiming that it makes no difference who wins. It matters a great deal. Vote, by all means.
But tune out politics when you turn to investing. You are likely to end up wealthier than if you base your financial decisions on political convictions.
TORONTO – Canada’s main stock index was up more than 100 points in late-morning trading, helped by strength in the base metal sector, while U.S. stock markets were also higher.
The S&P/TSX composite index was 143.00 points at 24,048.88.
In New York, the Dow Jones industrial average was up 174.22 points at 42,088.97. The S&P 500 index was up 10.23 points at 5,732.49, while the Nasdaq composite was up 30.02 points at 18,112.23.
The Canadian dollar traded for 74.23 cents US compared with 74.28 cents US on Wednesday.
The November crude oil contract was down US$1.68 at US$68.01 per barrel and the November natural gas contract was down six cents at US$2.75 per mmBTU.
The December gold contract was up US$4.40 at US$2,689.10 an ounce and the December copper contract was up 13 cents at US$4.62 a pound.
This report by The Canadian Press was first published Sept. 26, 2024.
Switching to an online-only bank more than a decade ago was just another way Jessica Morgan was trying to save money at the time as a new grad.
“Saving money was the main motivator,” Morgan, now a financial educator and founder of Canadianbudget.ca, recalled.
“After graduating, you no longer qualify for student rates where you might get free banking and I didn’t want to go back to paying fees for giving the bank my money to hold.”
Digital lenders have grown in popularity in recent years, with more players popping up in the sector and traditional banks beefing up their online offerings. But some Canadians may still be hesitant to bank with a financial firm that doesn’t have physical branches where you can talk to an employee face-to-face.
Natasha Macmillan, director of everyday banking at Ratehub.ca, says some of that hesitancy to switch to an online lender is loyalty.
“There’s a large portion of Canadians who have had the same bank account for many years … they’re just hesitant to switch because it’s what they know.”
Tedious paperwork to switch banks can also discourage many Canadians from making the move despite the ease of opening online-only bank accounts, Macmillan added.
“There’s that aspect of you still need to sit down, do your research and then pick that online-only bank,” she said.
Data security concerns have also sowed seeds of doubt among many who are contemplating the switch, and prefer to continue to work with traditional banks with long-established reputations, Macmillan said.
Morgan said she often hears concerns from her clients — “What if I need help? Is this bank safe to use?” or more logistical questions, such as having access to an ATM or getting certified cheques.
One of the only major snags she personally recalls running into with her online lender was when she was purchasing a home.
“I needed to get a certified cheque, like, right away if I was going to put in an offer,” Morgan said. “You can get a certified cheque but it takes three days or so. They courier it to you.” She ended up going to her husband’s traditional bank to get day-of service.
Most online-only banks tend to offer banking products, such as savings accounts, with higher interest rates compared with traditional banks. Many also offer access to cash through any bank ATM without charge.
“Digital banks have generally a lower cost structure than a traditional bank and those savings will be passed on to the customer,” said Mahima Poddar, group head of personal banking at EQ Bank. For example, EQ offers a high-interest chequing account with no fees on everyday banking and unlimited transactions.
But customers should be aware they can’t deposit cash into their account and they can only withdraw bills, not coins.
“We don’t offer depositing of cash, but all of our research has shown that the use of cash is really diminishing,” Poddar said. “There are very few reasons why you need to urgently deposit.”
Customers also have to get used to doing all their banking by phone or through the company’s website or app.
Poddar added she thinks Canadians are more open to change, especially after the COVID-19 pandemic, which accelerated the need for better online banking services.
While trust in traditional institutions plays a strong role in choosing a bank, Poddar said EQ has the same level of protection and is governed by the same regulators as the big six banks in the country.
Lisa Brandt, 61, switched to online-only Manulife Bank more than five years ago. She says she has benefited from the move and has saved a lot of money over time on various banking fees.
“It puts me in the driver’s seat,” she said.
However, she did run into an issue once with depositing a cheque after she sold her home.
“If you’re going to deposit a couple hundred thousand dollars from a house sale, you’ll have to courier (the cheque) to them,” she said.
“It’s not quite as simple as walking into a branch and saying, ‘Give me my money.'”
While many online-only banks have been growing their consumer banking product offerings, traditional banks tend to have more financial product options, not only for individuals but also for small businesses.
“What we have heard from some Canadians is while they might be moving their chequing, savings and GIC accounts to those (online-only) spaces, they’re still maintaining a mortgage with the big players,” Macmillan said.
It’s not about moving all assets to one bank but weighing options on an individual basis, such as picking a bank with the lowest fee on a chequing account but moving investments to another bank for a better return, she explained.
“We’re starting to see that flexibility where people are shopping around for the best opportunity that can give them the most bang for their buck,” Macmillan said.
She added it is important for people to identify why they’re thinking of switching and find an online-only bank that aligns with their goals.
“It’s finding that happy medium where you do feel trust and security, that lower cost and fees and also the convenience and accessibility,” Macmillan said.
This report by The Canadian Press was first published Sept. 26, 2024.
TORONTO – Strength in the energy and base metal stocks lifted Canada’s main stock index higher in late-morning trading, while U.S. stock markets also climbed higher.
The S&P/TSX composite index was up 78.80 points at 23,973.51.
In New York, the Dow Jones industrial average was up 89.81 points at 42,214.46. The S&P 500 index was up 2.55 points at 5,721.12, while the Nasdaq composite was up 21.24 points at 17,995.51.
The Canadian dollar traded for 74.24 cents US compared with 74.02 cents US on Monday.
The November crude oil contract was up US$1.06 at US$71.43 per barrel and the November natural gas contract was down two cents at US$2.83 per mmBTU.
The December gold contract was up US$18.10 at US$2,670.60 an ounce and the December copper contract was up 15 cents at US$4.49 a pound.
This report by The Canadian Press was first published Sept. 24, 2024.
