Capital Markets: Observations & Insights
Casting a Vote for Fundamentals
“The empires of the future are the empires of the mind.” – Winston Churchill
Many people view the 2020 U.S. presidential election as the biggest and most important election in a century. So then it must be immensely important for the stock market’s subsequent performance, right? No, not in our opinion. We believe the expectations leading up to the election are likely to produce swings in sentiment and stock prices, but the results of the election are unlikely to drive U.S. equity performance over the next few years for two reasons. First, major legislation is unlikely to be passed without a sweep of one party, which is improbable. Second, business fundamentals have proven to be more important than changes arising from legislation. For example, domestically focused companies that should have benefitted disproportionally from the policies of the current administration, such as the corporate tax rate reduction, have not done particularly well. In fact, over the past three years, the most innovative companies in the S&P 500 have outperformed domestically oriented companies as well as the broader market. Over the next four years, regardless of which party is in power, we believe that innovative, secularly growing companies will prosper.
Daniel C. Chung, CFA Chief Executive Officer Chief Investment Officer
Brad Neuman, CFA Senior Vice President Director of Market Strategy
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