2024 Q3 Client Letter: Market Movement & Elections

Happily, nearly all Clients are complete with the signing process, so now the assets will be on the move.  There is an unavoidable period of stasis (or TACAN Cone of Confusion for those in the know) as assets move from one Custodian to the other.  Rest assured, we are tracking the movement every day.  And Schwab has provided a dedicated person - who just quietly has been an absolute gem - to assist with the transition.

 

All in all, I could not be happier with the service provided by Schwab.  If your experience is any different, please let us know - they have been exceptionally responsive and I don't see that changing going forward.

Market Activity

Going into September, Market Pundits warned of how historically bad the month of September is for markets.  Well, ah-hem, for the first time since 2019, the S&P 500 was positive for the month...about 2% for those keeping score.  While not enough to convict, this evidence is yet another example of both the unpredictable nature of markets - and perhaps more importantly, the utility of market predictions.

 

For the quarter, we enjoyed continued increases in market values across all asset classes:

• S&P 500:  +5.84%
• International (FTSE Global All Cap Ex-US):  +7.83%
• Bonds (Baird Core Plus Bond Fund [BCOIX]):  +5.22%
• Real Estate (Dimension Real Estate ETF [DFAR]): +16.68%  

These quarterly gains built on what has been very solid year-to-date performance.  In short, enjoy the market increases - IT HAS BEEN A VERY GOOD YEAR.

Presidential Election

In case you didn't know, there's a Presidential Election coming up. We have already received emails from Clients asking about its prospective impact on investment portfolios - this is a pretty typical ask.  

 

Before going further, I remind you that I am intentionally apolitical in my professional correspondence.  My job is not to predict elections, sway anyone's politics, or advertise my own viewpoints.  Rather, my job is to assess the current environment and work with you to achieve your financial goals.  In summary, I am definitely NOT the person for election predictions or solutions to our Nation's issues.

 

Despite the inadvisability, assessing an election's impact on one's portfolio is unavoidably enticing to some.  I will repeat what I said in 2016 and 2020 - this is a fool's errand...mixing politics and investment portfolios results dangerous elixir.  Sadly, this lesson is constantly relearned by some.

 

Previously, I supported the above statement by way of historical market performance...that is easy data to find and is very difficult to refute.  Indeed, studying history can reveal some interesting truths.  For example, I was surprised to learn that the S&P 500 performed better under President Clinton than President Reagan - 15.0% per year vs 10.2%....those are the numbers. (Source)

 

Rather than inundate you with numbers about the election - you can find that via simple Google searches - this year I decided to provide you with an aviation analogy as it relates to the election - no pun intended, buckle up....

 

As many of you are aware, I was an F/A-18 Hornet Pilot in my past - I'm pretty sure I could still take off and land one, I think.  Back in the day, I flew every model from the A to the F, including a Frankenstein version of the Hornet downunder in Australia.  Prior to my first Hornet flight, I flew about 60 hours in a Cessna 172 and then maybe 200 or so in the mighty T-45 Goshawk, including 10 harrowing arrested landings - no bolters for you Half-Blind LSOs (is there another kind?) out there.

 

Flying a Fighter Plane can get pretty chaotic.  In almost all Tactical Flights, we put the jet into regimes where departure from controlled flight was a distinct possibility - not unlike what the media (and the candidates) put us through going into an election.

 

For as much training as Fighter Pilots receive, one may think departing controlled flight would require an esoteric sequence of flight control inputs - after all, we are Fighter Pilots and can make the plane do anything we want, right?

 

Well, you may be surprised to learn what every Tactical Aircraft's out-of-control procedures are.  I will never forget them as we briefed them before every mission, of which I had probably about 1,000.  The out-of-control checklist is as follows:

 

1) Controls Release

2) Feet off Rudders

3) Speedbrake In

4) If still out of control, Throttles Idle

 

There are steps beyond this, though I will spare you having to read them.  My point here is to illustrate the very simple steps Fighter Pilots take when entering one of the more serious risks of any mission - departing controlled flight.  This seems counterintuitive, yet believe me, it's true - when the jet is not responding to your inputs, simply let go and the aircraft eventually rights itself.

 

For elections, which have numerous similarities to uncontrolled flight, many people seek to position their portfolios based on faulty reasoning.  The most faulty premise is that Republican control of the White House and Congress automatically equals stock market greatness.  Again, the numbers are clear - Divided Government with a Democratic President has historically yielded the best market performance - 16.63% per year (Source).

 

So if you are considering dramatic portfolio repositioning in anticipation of an election result, my advice is simply don't...release the controls and put your throttles at idle.  The Stock Market is a casino in reverse - the more time you stay invested, the better you tend to do.  If your election plan for your portfolio has you out of the market, even for a brief period, the impact on your portfolio can be dramatic.  If you don't believe me, here are the numbers.

Conclusion

Presidential Elections are clearly very, very important events for our country, and for better or worse, the world.  An election's importance, however, is for reasons other than portfolio positioning...you don't know the angst I felt typing that!!!

 

Just like the Hornet, the United States was built for success and the long-term viability of our economy, and concomitantly, the Stock Market, will continue to march forward regardless of the temporary occupant of the White House.  This has been the case since 1776, and I have absolutely zero doubt my United States' greatness will continue through 2276 and beyond.  You can take those two statements to the bank.

 

Thank you all for your continued confidence in Resilient Asset Management in assisting you with achieving your financial goals.  As always, if you would like to discuss your personal financial situation, please contact me directly.