Will the bull run all the way to Elec­tion Day?

Op­ti­mism over China trade talks adds to pos­i­tive out­look

USA TODAY International Edition - - FRONT PAGE - Jes­sica Men­ton

His­tory shows the stock mar­ket likes when a pres­i­dent seeks a sec­ond term

Elec­tion Day is a year away, and stocks are poised to keep ris­ing over the next 12 months with an in­cum­bent in office – that is, if his­tory is any in­di­ca­tion.

Since 1952, the Dow Jones In­dus­trial Av­er­age has climbed 10.1% on av­er­age dur­ing elec­tion years when a sit­ting pres­i­dent has run for re­elec­tion, ac­cord­ing to the Stock Trader’s Almanac, which is widely used among in­vestors to track his­tor­i­cal stock mar­ket pat­terns. Over the same pe­riod, the blue- chip av­er­age has fallen 1.6% dur­ing elec­tion years when there’s an open field.

One rea­son why: There’s typ­i­cally less un­cer­tainty for peo­ple who buy and sell stocks when an in­cum­bent is in office and is run­ning for a sec­ond term. In the years lead­ing up to an elec­tion, sit­ting pres­i­dents tend to roll out new poli­cies or push for lower taxes in

an effort to bol­ster the U. S. econ­omy, some an­a­lysts say.

U. S. stocks have marched to record highs in re­cent years, helped by the tax over­haul in late 2017 that lifted cor­po­rate profits.

Still, the boost from those tax cuts has be­gun to weaken. And some in­vestors fear the tar­iff bat­tle be­tween Wash­ing­ton and Bei­jing could raise costs for com­pa­nies, which could dent growth in their profits. So far, though, earn­ings in the lat­est quar­ter haven’t pulled back as much as an­a­lysts ex­pected.

“De­spite all of the geopo­lit­i­cal events, things still look good for stocks next year with an in­cum­bent run­ning,” said Jeffrey Hirsch, ed­i­tor of the Stock Trader’s Almanac. “The po­ten­tial for a de­cent trade truce with China, along with an econ­omy that’s still grow­ing and ac­com­moda­tive in­ter­est rates add up to a con­tin­u­a­tion of the bull mar­ket.”

Trade hopes

Op­ti­mism about a U. S.- China trade deal, a more flex­i­ble ap­proach on in­ter­est rates from the Fed­eral Re­serve and bet­ter- than- ex­pected cor­po­rate earn­ings has re­newed faith in the 10- year bull mar­ket. Signs of a strong U. S. la­bor mar­ket and an im­prov­ing hous­ing sec­tor have helped al­le­vi­ate some con­cerns and pro­pelled all three ma­jor U. S. stock in­dexes to records this week.

That fol­lows a gang­buster stretch for stocks since Trump was elected pres­i­dent. Since Elec­tion Day 2016, the Dow has ral­lied roughly 50%.

In­vestors re­ceived more good news Tues­day. The U. S. ser­vice sec­tor, which ac­counts for more than two- thirds of U. S. eco­nomic ac­tiv­ity, bounced back in Oc­to­ber af­ter slump­ing to a three- year low the prior month. That comes af­ter two sep­a­rate re­ports last week showed that U. S. em­ploy­ment grew at a ro­bust clip in Oc­to­ber, while con­sumer spend­ing re­mained on solid foot­ing in Septem­ber. What’s key is that the Amer­i­can shop­per re­mains a bright spot for the econ­omy even as man­u­fac­tur­ing and busi­ness in­vest­ment fal­ter.

Re­tire­ment plan­ning

If you’re do­ing an end- of- the- year re­view of your re­tire­ment plan in­vest­ments, some wealth man­agers sug­gest stick­ing with your cur­rent per­cent­age of stocks and bonds.

Mike Pier­shale, pres­i­dent of Pier­shale Fi­nan­cial Group in Bar­ring­ton, Illi­nois, man­ages port­fo­lios for re­tirees and pre- re­tirees. Most of his clients have 70% to­ward stocks and 30% to bonds. Since Pier­shale ex­pects the stock mar­ket to keep strength­en­ing through 2019 and into next year, he’s ad­vis­ing clients to re­main in their cur­rent al­lo­ca­tions.

“We’re in the long­est bull mar­ket in his­tory and we’re over­due for a re­ces­sion, but good economies don’t die of old age,” Pier­shale said. “At some point, this ( bull mar­ket) is go­ing to be over, but there are pos­i­tive signs that this could last through 2020 at least.”

Hur­dles ahead

To be sure, un­cer­tain­ties re­main. An im­peach­ment in­quiry into Pres­i­dent Don­ald Trump poses a wild card for the stock mar­ket. While an im­peach­ment could threaten near- term gains, it likely won’t trig­ger steep de­clines or a re­ces­sion, some an­a­lysts say.

“The mar­kets don’t like un­cer­tainty,” said Sam Sto­vall, chief in­vest­ment strate­gist at finan­cial- re­search com­pany CFRA, “but the health of the econ­omy prob­a­bly won’t be threat­ened by an im­peach­ment be­cause most peo­ple don’t think a con­vic­tion is likely.”

GETTY IM­AGES

The Dow Jones In­dus­trial Av­er­age has climbed 10.1% on av­er­age while a pres­i­dent seeks re­elec­tion.

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