For vote ad­vice, don’t con­sult your 401(k)

Chicago Sun-Times - - TOP NEWS - DAVID ROEDER droeder@suntimes.com | @Roed­erDavid

We as Amer­i­cans have a lot on our minds with the ap­proach­ing elec­tion. Who will get the econ­omy go­ing again? Who has the best plans for health care and for con­trol­ling COVID-19?

What’s go­ing to hap­pen to my 401(k)?

There’s cli­mate change and im­mi­gra­tion and gen­eral ur­ban un­rest.

And, re­ally, what will hap­pen to my 401(k)? Ask­ing here for all for­tu­nate enough to have one.

It’s im­por­tant, which we know be­cause Pres­i­dent Trump talks about it all the time. “You want to raise taxes? This whole thing — your 401(k)s will drop down to noth­ing, and your stock market will drop down to noth­ing,” he said July 2. Four days later, he tweeted that Joe Bi­den would make your 401(k)s “dis­in­te­grate and dis­ap­pear.” At the Repub­li­can Con­ven­tion, he said Bi­den “has pledged a $4 tril­lion tax hike on al­most all Amer­i­can fam­i­lies, which would to­tally col­lapse our rapidly im­prov­ing econ­omy, and once again record stock mar­kets that we have right now will also col­lapse. That means your 401(k)s. That means all of the stocks that you have.”

Many peo­ple are apt to dis­count Trump’s broad­sides, but lin­ger­ing doubts are nat­u­ral. What does his­tory say about stock per­for­mance dur­ing Demo­cratic or Repub­li­can ad­min­is­tra­tions? Can Bi­den’s agenda be dan­ger­ous when the econ­omy is so sickly? Read on for a cou­ple of sur­prises.

As in prior elec­tion years, in­vest­ment an­a­lysts are putting out com­men­taries on the sub­ject. Of th­ese, I find in­spi­ra­tion in one posted Aug. 25 by Jim McDon­ald, chief in­vest­ment strate­gist at North­ern Trust. The con­clu­sions are not unique to him, but I give him and his team props for be­ing thor­ough and dis­pas­sion­ate. I also like quot­ing some­one from a Chicago com­pany who’s not in an East Coast bub­ble.

Go­ing back to 1946, the anal­y­sis finds lit­tle mean­ing­ful cor­re­la­tion in stock re­turns and party con­trol of the White House. Democrats will point out that dur­ing their pres­i­den­cies, the av­er­age re­turn of the S&P 500 has been 10.5% vs. 6.5% for the Repub­li­cans. But a small set of data lim­its the con­clu­sions and Repub­li­can per­for­mance was hurt by neg­a­tive re­turns dur­ing the times of Ge­orge W. Bush, whose terms were brack­eted by 9/11 and the Great Re­ces­sion, and Richard Nixon, whose en­e­mies list left off him­self.

McDon­ald looked deeper to con­sider the power-shar­ing be­tween the pres­i­dent and Congress. By this mea­sure, Repub­li­cans did best, with an av­er­age S&P re­turn of 15.7%, when they had the White House and at least some con­trol in Congress. Demo­cratic pres­i­dents had their best re­turns when at least one con­gres­sional cham­ber was ruled by Repub­li­cans.

“The re­al­ity is that none of th­ese com­bi­na­tions have been fre­quent enough to be sta­tis­ti­cally re­li­able,” McDon­ald wrote.

Wall Street gets a bad rap for be­ing too fo­cused on quar­terly profits. It’s a flawed hu­man en­deavor, go­ing too crazy on the ups and downs, but stocks for the most part re­flect a con­sen­sus about the near fu­ture. When new in­for­ma­tion comes in, mar­kets change course, some­times dras­ti­cally. In­vestors read the polls that are in the news, so McDon­ald said they are fac­tor­ing in good odds for a Bi­den vic­tory. But con­trol of the Se­nate is in doubt, and McDon­ald re­minds us that Hil­lary Clin­ton had a sim­i­lar polling lead four years ago.

As to the Bi­den tax plan and its $4 tril­lion price tag, McDon­ald is serene. He wrote that be­cause of the virus, our econ­omy’s prob­lem is de­mand, not sup­ply. You solve that by en­cour­ag­ing con­sump­tion, which Bi­den would do by adding $7 tril­lion to fed­eral spend­ing to pump out a stim­u­lus. There is no such thing as a deficit hawk in to­day’s cri­sis and in to­day’s Wash­ing­ton. “The in­creased debt lev­els are likely only go­ing to be a prob­lem should in­ter­est rates jump, which we do not see over the next five years,” McDon­ald wrote. “In sum­mary, wor­ries that higher taxes, as cur­rently pro­posed, would clob­ber eco­nomic growth may be over­done.”

If you still won­der about the elec­tion and in­vest­ments, McDon­ald sug­gests sec­tors that a Bi­den win might help or hurt. His win­ners in­clude util­i­ties, health care and in­for­ma­tion tech­nol­ogy, with losers in­clud­ing en­ergy, the big banks and big pharma.

But this be­comes a guess­ing game. Brett Arends, writ­ing at Mar­ket­Watch, said tech stocks, the kind the pres­i­dent likes to bash, have been gain­ers in the Trump years. The big­gest loser? Coal. Who’d a thunk it?

So maybe like TV rat­ings and crowd sizes, 401(k) bal­ances ought to take a back seat to other con­cerns. You know, things like in­jus­tice, en­vi­ron­men­tal harm, a na­tion slouch­ing to­ward au­toc­racy. Add those to­gether and my guess is the re­sult is some­thing that’s not a bull market.

DEMO­CRATIC PRES­I­DENTS HAD THEIR BEST RE­TURNS WHEN AT LEAST ONE CON­GRES­SIONAL CHAM­BER WAS RULED BY REPUB­LI­CANS.

EVAN VUCCI/AP

Pres­i­dent Don­ald Trump ac­knowl­edges the crowd af­ter ad­dress­ing the Repub­li­can Na­tional Con­ven­tion on Aug. 27.

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