With less than a month to go, the anxiety surrounding the presidential election is reaching fever pitch. Reflective of the highly polarized political environment we currently find ourselves in, proponents of the two major parties are working overtime to convince voters the other side will have a draconian effect on the U.S. economy and equity markets for years to come.

The first question to address regarding this matter is whether the party affiliation of the president definitively impacts the performance of the economy or equity markets. In terms of the stock market, since World War II, only two presidents have had their term marked by a negative annualized return as measured by the Standard & Poor’s 500 Index. Interestingly, these two presidents were both Republicans, Richard Nixon, and George W. Bush. The highest return during a president’s term during this time was the 19% annualized rate that occurred during the administration of Bill Clinton, a Democrat. In terms of annualized GDP growth, the strongest period of growth occurred during the administration of Harry S. Truman, and the weakest occurred during George W. Bush’s term in office. As you will recall President Bush’s tenure coincided with the bursting of the “tech bubble” in his first term and the onset of the Great Financial Crisis in his second term. In summary, as evidenced by the data shared above, presidential elections and presidential party affiliations have not historically been the primary drivers of equity market performance.

Marching in tandem with this year’s presidential election is the ongoing situation related to the coronavirus pandemic. The impact of the virus on the U.S. and global economies was extremely harsh in the second quarter and although the recovery process is underway, the prospect of further negative impact remains on the horizon. Given the severity of the pandemic, the progress in overcoming it likely will have more impact on the economy and financial markets than the outcome of the election. We have already seen extensive responses to the pandemic in the form of significant easing of monetary policy along with massive fiscal stimulus.

Given this backdrop, what should investors do to position themselves properly? Our view is that investors should continue to maintain asset allocation positioning that is in alignment with their long-term goals and objectives. Monetary policy officials have shared their commitment to take whatever measures are necessary to support economic growth and promote policies committed to reducing unemployment. In addition, another round of fiscal stimulus is currently being discussed and could be prospectively implemented within the next several weeks. Also, numerous pharmaceutical companies are working feverishly to develop a vaccine that will move the world closer to an effective cure for the coronavirus.

As we progress through the final weeks prior to the election, volatility may very well increase as markets react to news flow related to presidential campaigns and the ongoing battle against the coronavirus. One of the tenets of our investment philosophy is to focus on the long term. We think that is the appropriate approach to take at this moment in time.

Source: BTC Capital Management, Bloomberg LP, Ibbotson Associates, FactSet.
The information provided has been obtained from sources deemed reliable, but BTC Capital Management and its affiliates cannot guarantee accuracy. Past performance is not a guarantee of future returns. Performance over periods exceeding 12 months has been annualized.

The information within this document is for information purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security. Statements in this report are based on the views of BTC Capital Management and on information available at the time this report was prepared. Rates are subject to change based on market and/or other conditions without notice. This commentary contains no investment recommendations and you should not interpret the statement in this report as investment, tax, legal, and/or financial planning advice. All investments involve risk, including the possible loss of principal. Investments are not FDIC insured and may lose value.

Jon Augustine, CFA, Chief Investment Officer

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