Another election has come and gone. We can now go on with our normal lives with a lot fewer political commercials! What does this mean for the financial markets? The answer is, probably less than you might think. Ultimately, we believe a company’s value, and hence its stock price, is driven by earnings (as the graph below highlights) and we do not envision a significant change to the earnings outlook.
Stocks Don’t See Red or Blue, They See Green
Post–Presidential Election history shows a tendency for the market to advance following elections, even in hotly contested elections. The S&P 500 has advanced over the following 12 months in 9 of the last 10 elections, with a median gain of 17.2% (simple price appreciation).
S&P 500 Returns After the Election
Last 10 Elections
| Next Month | Next 3 Months | Next 6 Months | Next Year | |
| Average | -0.1% | 4.1% | 7.0% | 15.2% |
| Median | 1.4% | 6.2% | 8.6% | 17.2% |
| Higher | 6 | 8 | 8 | 9 |
| Count | 10 | 10 | 10 | 10 |
| % Higher | 60.0% | 80.0% | 80.0% | 90.0% |
Past performance is not indicative of future results. Neither past actual, projections, nor other forward looking statements regarding future financial performance of markets are only predictions and actual events or results may differ materially. You cannot invest directly in an index.
Historically, the stock market has done better when there is gridlock in Washington. However, that does not seem to be the case now. As expected, the Senate has flipped to Republican control. The Republicans also appear to have held onto the House, but many races have yet to be called, so that is not official yet.
What all of this means is that the Republicans seem to have a mandate from the public given the red wave (at least for the next two years). The chart below shows that since 1950, the market has done very well with a Republican President and either a divided Congress or a Republican controlled Congress, which are the two possible outcomes.
From a practical standpoint, this likely means that the Trump administration’s pro-business policies will have traction. Tax policy will be front and center as the administration will look to make permanent and/or extend the Tax Cut & Jobs Act tax cuts, which are set to sunset at the end of next year. That means that companies will be operating under a tax regime with which they are familiar and are able to potentially grow earnings.
The regulatory environment will likely ease, particularly with regards to energy, financials, and labor policies. On tariffs, we would expect Trump to impose additional tariffs on imports from China, but the 10-20% across-the-board tariff that Trump has proposed is not our base case. Nonetheless, we expect auto tariffs to come into focus and assume there will be tariffs applied to auto imports. Now that the election is behind us, we believe the market will return to focusing on fundamentals, such as corporate earnings, interest rates, and the economy. We know that over time, stock prices track earnings and that earnings are highly correlated to the economy. The consensus among analysts is that earnings will continue to grow and hit new highs.
S&P 500 Operating Earning Are Expected to Grow
Importantly, we believe the FOMC will continue to lower interest rates. The Federal Reserve is expected to cut the overnight lending rate by 0.25% tomorrow. The market is also currently forecasting an additional rate cut in December and three more cuts in 2025. On the margin, those additional rate cuts may be questioned given the prospects of additional tariffs, making prior tax cuts permanent, immigration restrictions, and fiscal spending on which Trump campaigned.
We acknowledge that the country is very polarized when it comes to politics, and there are very different reactions occurring nationwide as a result of the election outcome. The graph below illustrates that abandoning your investment portfolio because you are unhappy with the election results has been a failed investment strategy, no matter who occupies the Oval Office.
Don’t Just Invest When Your Team Wins
As we have repeatedly stated, we believe the five drivers of stock prices over time are the economy/earnings, monetary policy, valuations, investor sentiment, and interest rates. Notice that we do not include politics as a driver of stock prices over time. We seek to invest in what we believe are high-quality companies and our philosophy and process will not change with the current political landscape. We believe that adhering to our discipline of identifying what we believe are stocks and bonds of high-quality companies with improving business characteristics (often leading to higher dividends) purchased at attractive prices is the best way to achieve our goals: risk-adjusted returns and meaningful diversification.
So far, the market has responded favorably to the election results. Stocks are strongly higher this morning, volatility is lower, and rates are higher. The credit-based risk management models that drive several of our tactical strategies, including our Navigator® Fixed Income Total Return and Navigator® Global Tactical portfolios, remain risk-on. Those models have been risk-on now for a full year, having turned bullish on 11/6/2023. Since then, through yesterday’s close, the S&P 500 advanced 34.3%, the Russell 2000 Index of small-caps is up 31.9%, the MSCI ACWI ex-US advanced 19.6%, and the Bloomberg US Corporate High Yield Index is up 13.9%.
As always, we believe that the surest way for clients to achieve financial success is to remain focused on their long-term goals and objectives. Clark Capital is committed to helping you and your clients navigate challenging market conditions. Please reach out to your Investment Consultant with any questions.
You cannot invest directly in an index. This document may contain certain information that constitutes forward-looking statements which can be identified by the use of forward-looking terminology such as “may,” “expect,” “will,” “hope,” “forecast,” “intend,” “target,” “believe,” and/or comparable terminology (or the negative thereof). Forward looking statements cannot be guaranteed. No assurance, representation, or warranty is made by any person that any of Clark Capital’s assumptions, expectations, objectives, and/or goals will be achieved. Nothing contained in this document may be relied upon as a guarantee, promise, assurance, or representation as to the future. As we have repeatedly stated, we believe the five drivers of stock prices over time are the economy/earnings, monetary policy, valuations, investor sentiment, and interest rates. Notice that we do not include politics as a driver of stock prices over time. We seek to invest in what we believe are high-quality companies and our philosophy and process will not change with the current political landscape. We believe that adhering to our discipline of identifying what we believe are stocks and bonds of high-quality companies with improving business characteristics (often leading to higher dividends) purchased at attractive prices is the best way to achieve our goals: risk-adjusted returns and meaningful diversification.
Information and opinions expressed are those of the author(s) and do not reflect the opinions of other investment teams within Clark Capital, unless otherwise expressly noted. The information referenced are as of the date of publication and are subject to change due to changes in the market or economic conditions and may not necessarily come to pass. There is no guarantee of the future performance of any Clark Capital investment portfolio. Material presented has been derived from sources considered to be reliable, but the accuracy and completeness cannot be guaranteed. Nothing herein should be construed as a solicitation, recommendation or an offer to buy, sell or hold any sectors or securities, other investments or to adopt any investment strategy or strategies. For educational use only. This information is not intended to serve as investment advice. This material is not intended to be relied upon as a forecast or research. The investment or strategy discussed may not be suitable for all investors. Investors must make their own decisions based on their specific investment objectives and financial circumstances. Past performance does not guarantee future results.
This document may contain certain information that constitutes forward-looking statements which can be identified by the use of forward-looking terminology such as “may”, “expect,” “will,” “hope,” “forecast”, “intend”, “target,” “believe,” and/or comparable terminology (or the negative thereof). No assurance, representation, or warranty is made by any person that any of Clark Capital’s assumptions, expectations, objectives, and/or goals will be achieved. Nothing contained in this document may be relied upon as a guarantee, promise, assurance, or representation as to the future.
Investing involves risk, including loss of principal.
Clark Capital Management Group, Inc. is an investment adviser registered with the U.S. Securities and Exchange Commission. Registration does not imply a certain level of skill or training. More information about Clark Capital’s advisory services can be found in its Form ADV which is available upon request.
The S&P 500 measures the performance of the 500 leading companies in leading industries of the U.S. economy, capturing 80% of U.S. equities.
The Bloomberg Barclays U.S. Corporate High-Yield Index covers the U.S. dollar-denominated, non-investment grade, fixed-rate, taxable corporate bond market. Securities are classified as high-yield if the middle rating of Moody’s, Fitch, and S&P is Ba1/BB+/BB+ or below.
The Russell 2000 index is a market index comprised of 2,000 small-cap companies.
The MSCI ACWI ex USA Index captures large and mid cap representation across 22 of 23 Developed Markets (DM) countries (excluding the US) and 26 Emerging Markets (EM) countries*. With 2,206 constituents, the index covers approximately 85% of the global equity opportunity set outside the US.
