Monday, July 15, 2024
Let’s pretend that you invested $1,000 at the beginning of the Eisenhower administration and you made a pact with yourself to only invest those dollars in the S&P 500 during Republican presidential administrations. You would then sell once a Democrat was inaugurated. Since 1953 (through May 30, 2024), that $1,000 would have grown to $27,400 according to Morningstar. Not bad, right? You would have 27 times your original investment. Now let’s say instead of investing during Republican administrations you invested that $1,000 only when a Democrat was in the White House. That $1,000 did even better: You would have about $61,800 today. Isn’t this result kind of ironic? Who would have thought the stock market had performed better under Democrat vs. Republican administrations? What if an investor invested $1,000 once Eisenhower was inaugurated and just left it sit in the S&P 500? That original $1,000 invested at President Eisenhower’s inauguration would have grown to $1.69 million! The moral of this story is: Ignore the noise! Do not let your political emotions – no matter which side of the isle you are on – carry over to your investments. Over the long-term, it does NOT pay to try to time the stock market based on which president you believe will have the biggest stock market impact. A small side note here: After decades of watching the market, I believe the Federal Reserve has a lot more sway over the stock market than any president.
If that example did not resonate, try this one: Since President Biden’s inauguration, which US equity sector did best through May 30, 2024? Consumer Staples? Health Care? Technology? Communications? Energy? Materials? Energy – made up of oil and gas companies, not renewables – is up 143% since Biden’s inauguration while the next best sector, technology, is up 67.3%. Who would have guessed the energy sector would vastly outperform every other sector by a wide margin in an administration that consistently warns the public about the dangers of global warming and invests heavily in renewable energy? Thus, it is important to remember that not only is trying to time the stock market next to impossible, but picking which sectors will outperform in a given administration is also extremely difficult. That is why we own such a large chunk of the total stock market index. By the way, if you are reviewing your Position Performance report, note how the small-cap stocks are still lagging the large- cap tech stocks. As the Federal Reserve lowers rates (they have telegraphed that they will lower 0.25% or a quarter percent in September and again in December), I think you will find small-cap stocks will begin to rally. Hopefully the large-cap stocks will hold on to what they have gained so far this year, which has been extraordinary.
Many of you with fixed income in your portfolios were wondering about a recent change we made in your portfolios. The last of the Metropolitan West founders that managed Metropolitan West Total Return (MWTIX) is leaving at the end of this year. I am certain MWTIX has a broad bench ready to take over, however, their performance has been slightly lagging when compared to the aggregate bond market index – we expect managed bond funds to surpass the index over long time periods like five or ten years. Thus, CJ and I made the decision to sell all of the MWTIX and divide the proceeds among our three other intermediate bond funds: Dodge & Cox Income, PIMCO Income and Vanguard Core Bond fund/ETF. All three are managed and not indexed. They all have great track records with reasonable expense ratios.
Any day now we will have our new website up and running. While Nicole did a fantastic job with our current website, our new website has a few more bells and whistles. Websites are typically used to attract potential clients, but we hope our new site will be an excellent resource for all of you. I am looking forward to hearing your feedback. Also, please do not forget that we are offering financial planning – the software we are using will provide some clarity to your retirement goals and objectives. Please consider reaching out and taking advantage of this opportunity to become even more comfortable with your retirement projections.
If you have not stopped in to see us lately, please do not hesitate to contact me to schedule an appointment. Enclosed you will find your Portfolio Holdings, Performance Analysis and Position Performance reports as of June 30, and a quarterly Account Management Fee Statement. Please call us should you desire the most recent copy of our Form ADV Part 2A. In addition, do not forget to notify us should your investment objectives or personal financial situation change.
Keep those mosquitoes at bay – they are wicked in Madison this summer!
William A. Bullock