2022 Mid-Term Elections: Wipeout?!

Hey, I’m Chris Perras, Chief Investment Officer with Oak Harvest Financial Group. This is our investment team’s mid-week release when we examine a news item, headline, or story making the rounds from publicly available sources and ask, “Is it News or Noise?”

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So here we go..

Ok, viewers, I know its early. Like really early. In fact, it’s almost a year off. What is the “it” I am talking about? Yep, it’s the mid-term congressional elections out next November. Clients, long time listeners, and my friends and family know I hate talking about politics. Why? First, I am not a political person, and I hate the games that are played in political circles.  But more importantly to listeners I hate discussing politics, because often, the conversation quickly moves to one filled with emotions, centered around social policies or unquantifiable topics. Things that are hard if not impossible to measure and quantify with hard data.  Well listeners, I imagine with the reach and power of the TV news media diminishing by the year, they and other media outlets will once again be doing their best to stoke voter and investor emotions throughout 2022, particularly during the very normal, economically seasonally slow second and third summer quarters.

Investors, this is Oak Harvest’s first early attempt in advising you to do everything you can to tune out the upcoming noise and political rhetoric surrounding the 2022 mid-term elections.  Try to shut it all out of your investment decision making process regardless of which side of the isle you fall.

Yes, statistically, the mid-term year, or year 2 of a President’s term, is the worst year for the S&P500 in the 4-year Presidential Cycle. However, that doesn’t mean it will or should be a down year for your equity investments.

As we have discussed since the summer of 2020, pre-presidential election results, regardless of President, the first term of all Presidential Cycles show a November Year 1 into April Year 2 rally. The last 12 months, since President Biden was elected, have been as normal as it gets from those following that cycle.

After that first quarter in year two, which in this case would be say March or April of next year, the market risk rises for a 6-month, midyear, pause with higher volatility within the secular bull market. This cycle suggests that the first correction of -10% is possible from higher levels on the S&P500 during 2022 the first half of 2022. However, starting late summer of 2022, right around when the election noise will most likely be at its greatest, and economic growth its slowest, the Presidential Cycle enters its most bullish period of the four-year term. That period usually begins just prior to the November midterm elections, just like the lows in October of 2020. The subsequent rally has the potential to last throughout Year 3 of the cycle, in this case 2023. This is regardless of who wins the November mid-terms.

This pattern for the coming year is entirely in line with our first half 2022 outlook released a few weeks ago under the title “Curb your enthusiasm led to a bull market buy”. We will be reminding our clients this throughout 2022.

Does it matter that I personally think that the mid-term elections will be a complete “wipe-out” of incumbent Democrats and the GOP will gain back historically large number of seats in Congress? No, it doesn’t one bit and I’m sorry viewers who support the Democratic party, that is what the data says. No. It shouldn’t matter to the markets. Just as time and time again, I counseled clients and prospects at Oak Harvest throughout 2020, that our work said that the markets would not blink if President Trump lost the 2020 election and if there was a Democratic blue wave in Congress. Each of which happened. Why? Because that is what the historic data has said, and the Federal Reserve’s monetary policy matters more to the financial markets than who or what political party is governing our fabulous country.

Listeners, I believe that your financial advisor, of the people managing your money should be a fiduciary, for your money. Ask them if they are. What that means is that their primary concern should be for the long-term investment returns of your portfolio versus your individual risk profile, goals, and time horizon. That underlining priority doesn’t change with who wins or loses an election in Washington DC. As a CIO, my job is not to make social, ethical, or political judgments on behalf of our clients. I will repeat this belief, until I retire: my first and only job, as a fiduciary, is to do the best I can for all of our clients, seeking the best returns possible while adhering to your risk profile. And viewers, that job description, the one of financial fiduciary, is politically agonistic to the noise of the election cycle.

Give us a call here at Oak Harvest and ask to speak to one of our advisors.  Let us help you craft a financial plan that meets your retirement goals and needs first, and your greed’s second. Call us at (877) 896-0040 we are here to help you on your financial journey into and throughout your retirement years.

News or Noise:  Noise?!