The market likes President-Elect Joe Biden’s selection of Janet Yellen to serve as Treasury Secretary. Many Wall Streeters feared that Biden would appoint Elizabeth Warren, while many progressives feared he would appoint someone too friendly to big banks and the wealthy.[1]

According to Bloomberg:

With Yellen in charge, Biden’s Treasury department will be prepared to join Fed Chairman Jerome Powell’s policy of lower-for-longer interest rates with extended, expansionary government spending.[2]

Yellen faces severe conditions, as COVID-19 infections continue to soar and the number of Americans in need of immediate financial help soars right along with it. As Bloomberg points out, her most immediate challenge is “breaking a logjam on Capitol Hill to deliver economic relief to long and growing unemployment lines.”[3]

Janet Yellen certainly comes to the position with a surfeit of credentials. She earned her Ph.D. in economics from Yale, taught at Harvard, and as early as 1977 joined the staff of the Federal Reserve Board in Washington. During the Clinton administration, she was the head of the Council of Economic Advisors. She then became the president of San Francisco’s Federal Reserve Bank.

In 2014, President Obama appoint Ms. Yellen to serve as the first woman to chair the Federal Reserve.

She will now bring this experience and background to tackle the problems of unemployment and perhaps slowing economic growth—both sparked by the virus.

Yellen’s appearance on CNBC’s Squawk on the Street is likely the real reason for Mr. Market’s excitement. She said: “It would be a substantial change to give the Federal Reserve the ability to buy stock.” And she said:

I frankly don’t think [Fed stock ownership] is necessary at this point. I think intervention to support the credit markets is more important, but longer term it wouldn’t be a bad thing for Congress to reconsider the powers that the Fed has with respect to assets it can own.

We can only say: When the Federal Reserve starts buying stock, free market price discovery goes out the window.

But meanwhile, the bulls are roaring their approval of one of Biden’s most important appointments.

[1] https://www.bloomberg.com/news/articles/2020-11-23/biden-plans-to-nominate-janet-yellen-as-treasury-secretary?cmpid=BBD112320_CUS&utm_medium=email&utm_source=newsletter&utm_term=201123&utm_campaign=closeamericas&sref=otZgjKT7[2] https://www.bloomberg.com/news/articles/2020-11-24/yellen-as-treasury-secretary-sets-up-biden-to-go-big-on-stimulus?cmpid=BBD112420_MKT&utm_medium=email&utm_source=newsletter&utm_term=201124&utm_campaign=markets&sref=otZgjKT7
[3] https://www.bloomberg.com/news/articles/2020-11-23/biden-plans-to-nominate-janet-yellen-as-treasury-secretary?cmpid=BBD112320_CUS&utm_medium=email&utm_source=newsletter&utm_term=201123&utm_campaign=closeamericas&sref=otZgjKT7

Veterans Day – The Tomb of the Unknown Soldier

On March 4, 1921, the United States Congress approved the burial of an unidentified soldier who fought and died in World War I. He was buried on a Virginia hillside not far from the Potomac River in the Arlington National Cemetery—a symbol of those who have died to protect our freedoms. In respect, soldiers stand guard to protect his tomb.

Intriguing … who was this man? What was his story? Why do soldiers stand guard? What makes today’s solider want to be chosen for this duty? How did this tradition come about?

The Story

The story begins in France on Memorial Day 1921 when wounded Army Sergeant Edward F. Younger was given the task to choose from four caskets of unknown soldiers to receive this honor. He placed a wreath of white roses on the third casket from the left. The casket was sent to the Capitol Rotunda where the unknown soldier lies in state from the day his casket arrived until November 11, 1921. President Warren G. Harding officiated at the interment ceremony.

In 1958, several “unknowns” were exhumed from cemeteries in Europe, Africa, Hawaii, and the Philippines to represent World War II. Two of these exhumed soldiers were chosen—one from the European Theater, and one from the Pacific Theater. These two caskets were taken aboard the USS Canberra where Navy Hospitalman 1st Class, William R. Charette selected the Unknown Soldier of World War II. The casket not chosen received a burial at sea.

This same year, four unknown Korean War Veterans were chosen from the National Cemetery of the Pacific in Hawaii. The final selection of two caskets was made by Army Master Sgt. Ned Lyle. President Eisenhower conducted the ceremony of internment for the World War II and Korean War Veterans at Arlington Cemetery.

The Unknown Soldier from the Vietnam War was designated by U.S. Marine Corps Sgt. Maj. Allan Jay Kellogg Jr. on May 17, 1984. President Reagan presided over this internment. In 1998, the Unknown Soldier from the Vietnam War was exhumed and, through DNA testing, was determined to be Air Force 1^st Lt. Michael Joseph Blassie. It was decided that the crypt containing 1^st Lt. Blassie’s remains would remain empty.

The Guards of the Tomb

Guards of the tomb were created in 1926 as too many visitors were using the original crypt as a picnic table. By 1937, guards were stationed from the moment gates were opened in the morning until gates closed at night. Guards are charged to prevent any desecration or disrespect to the tomb and crypts.

These guards are military soldiers who come from every walk of life, from every state in the union, and are hand picked. Training for these men and women is rigorous. Over 80% of those who try out for this duty do not make it. Knowledge must be extensive about this monument, and strong military bearing a must. There are three Reliefs assigned with each guard, consisting of nine soldiers. And each Relief is based on height of the soldiers. The Tomb is completely run by Non-Commissioned Officers. Each soldier has a specific post to cover.

To serve at the Tomb of the Unknown Soldier is a great honor.

Please join with us this Veterans Day to remember those who have died so all of us may enjoy the freedoms we all have today.

Two-hundred and seventy.  That’s how many electoral votes it takes to win.  As of this writing, on the afternoon of Wednesday, November 4, 2020, neither candidate has reached that magical number yet – and it may be some time before we know who will.

As you’ve probably heard us say before, uncertainty is the thing investors fear most, and as of right now, there’s still a lot of uncertainty regarding this election.  It’s no surprise, then, that many of our clients have asked us about the election lately and how it may affect their portfolio.  We’ll get to that in a second, but the first thing we want to say is: If you’re nervous, you can relax.  And if you’re relaxed, you can stay that way!  In this case, all this uncertainty was expected, and it’s no surprise the election is still up in the air.  

In a normal year, most Americans are accustomed to either watching the TV on election night, waiting for the media to call the various states in favor of one candidate or another.  Or maybe you’re the type who prefers to just go to bed early and see who won in the morning, (which is probably the healthier option).  But this is not a normal year…and it’s certainly not a normal election.

Here’s the situation.  Due to the COVID-19 pandemic, more Americans are voting by mail or ballot box than ever before.  That means election officials have to do things a little differently.  Some states have laws preventing mail ballots from being counted until after a certain point.  Take Pennsylvania, for example.  In 2019, the state approved “no-excuse” absentee ballots, where any voter can request a mail ballot without needing to cite a reason.¹  At the same time, however, Pennsylvania law requires officials to wait until after the polls closed on election night before they could begin counting those mail ballots.  And many counties in the state waited until Wednesday morning to start processing those ballots.  Since mail-in ballots often take longer to verify than in-person ballots, the result is a delayed timeline.  In fact, it may be several days before all the votes are counted there.  

Another variable at play here is that some states – Nevada and North Carolina, for example – will count mail ballots that arrive after the election but were postmarked before.²  So, some states may not officially declare a winner until next week, although the media may call those races earlier if they feel there’s enough data on who will win.  

As luck would have it, nearly all the states we’re still waiting on are key “battleground” states that both candidates are desperately trying to win.  Many of these so-called swing states, each coming with a hefty number of electoral votes, are still processing their ballots.  That’s why many states remain “too close to call” by the media, although some will finish counting sooner than others.   

As of this writing, the following states are still up in the air: Alaska, Arizona, Georgia, Maine, Michigan, Nevada, North Carolina, Pennsylvania, and Wisconsin (Fox News did call Wisconsin for Biden at 3:20 this afternoon).  Some will almost certainly finish counting today.  Others, like Pennsylvania, may take several more days or even weeks.  So, while we may have a strong idea of who the winner is by the end of the day, it also may take much longer.  

The important thing to remember here is that the media does not decide the winner of each of these states.  Nor, frankly, do the candidates.  It’s true that the media will “call” each race as soon as they feel certain of the outcome, and they’re usually – but not always – right.  But these calls are technically meaningless.  Every county in this nation conducts their own election overseen by a county clerk.  Those votes are then tabulated – and the results certified – by each state’s Secretary of State.  Sometimes this process takes longer than others, and it’s been expected for months that the process would take particularly long in 2020.  So, my advice is to relax and focus on other things.  Most importantly, try to ignore all the gossip being thrown around on social media.  Much of it is fearmongering, and both sides of the aisle are guilty of it.  (That said, let’s all spare a thought for the thousands of people across this country who have volunteered their time to man polling locations and count ballots.  Many stayed up all night; many more will continue working for days.  It’s a hard, thankless job – but there is no more important responsibility in our nation right now.  If you know one of these people, please thank them for me!)

Before we put the final period on this message, I wanted to leave you with a quick thought about your portfolio.  We mentioned before that uncertainty is what investors hate most, but as of this writing, the markets are handling this uncertainty rather well.  We also know that politics and emotion go hand-in-hand.   It’s easy to react emotionally and fear what the election will mean for your hard-earned money.  That’s why I want to reassure you of three things:

1.   Historically speaking, the outcome of a presidential election has a relatively small impact on the markets.   Historically, the S&P 500 has gone up 10.8% under Democratic presidents and 5.6% under Republicans.³ Either way, the markets have risen over time.  Of course, we must always remember that past performance is no guarantee of future results.  But the point is, making investment decisions based solely on who sits in the White House is not a good idea.  

2.   From a policy standpoint, both Trump and Biden could bring positives and negatives when it comes to the markets.  I’ll send more info about this when we know who the winner is.  In the meantime, remember: our investment strategy is designed to get you through more than one election cycle, and its success does not depend on politics.  While political developments may prompt us to make tweaks here and there, our strategy is based on far more important factors.  

3.   Regardless of who wins, our team will be constantly studying the markets and keeping an eye on your portfolio.  If we ever feel changes need to be made, we’ll contact you immediately.  

In the meantime, let us know if you have any questions or concerns.  We’d be happy to chat.  Have a great day!          

Pandemics – Protests – Wildfires – Market Crashes – Recession

If someone ever tries to tell the story of 2020 on film, it will take more movies than Star Wars. At one point, we even had to worry about murder hornets. Murder hornets! There’s no question this year has been a crazy one. But it’s about to get even crazier. After all, a new presidential election is only a week away.

Over the last few weeks, several clients have asked me what the election could mean for the markets. At a time when there is so much uncertainty to deal with, the thought of adding an election to the mix can seem overwhelming. So, I thought I’d write about how we should prepare for both the run-up and aftermath of the election.

What exactly does the upcoming election mean for the markets?

Short-Term View: Prepare for Volatility

Uncertainty: That’s the key word. Investors hate it, the year has been full of it, and the lead-up to a presidential election just brings more of it. As a result, the markets often see increased turbulence just before an election. For example, in October of the last four presidential election years, the markets fell.¹ I don’t ever try to predict the future, but we should be especially prepared for volatility this year. That’s because there are still so many question marks surrounding our economy and the pandemic.

Pandemic. It is showing no signs of stopping, and indeed cases may climb again as winter sets in. The economy has improved, but is still on thin ice, with unemployment rates still stubbornly high. Investors are watching Congress with bated breath, waiting to see whether they’ll enact a new stimulus package. If not, that could spell trouble, as many economists believe more stimulus is needed for the economy to recover.

Election Turmoil. There’s another reason why we should prepare for volatility: The possibility of delayed—or worse, disputed—election results. Thanks to the pandemic, more people are likely to vote by mail than ever before. Mail-in ballots take longer to count than traditional ones, and some states “will count ballots that are delivered after the election if they are postmarked by a deadline.”² Because election officials are more concerned with counting votes correctly than quickly, we may not have a winner declared for several days or even weeks. In fact, earlier this year, during primary season, several states needed more than a week before they could declare a winner.

Remember 2000? If the losing candidate feels there are grounds to contest the results, that could delay the process even further, leading to—you guessed it—more uncertainty and thus more volatility. We don’t have to look far back in history to see what the markets did the last time results were delayed. Remember the drama surrounding the 2000 election? On election night, Florida’s results were considered too close to call. Over the next month, Americans learned more than they ever wanted about things like dimpled chads and butterfly ballots. The S&P 500, meanwhile, dropped over 8% between election day and December 15 when the result was finally decided.³

Now, none of this is to say that pre- and post-election volatility is guaranteed. It’s not. We should, however, prepare ourselves for it. Because the more mentally prepared we are to weather short-term uncertainty, the better equipped we are to remember…

The Long-Term View: Follow the Indicators of the Market

Every four years, I hear people say, “If the Democrats/Republicans win, I’m going to sell (or buy) because that means the markets will fall (or rise).” It’s understandable why people think this way. After all, politics play an increasingly large role in our daily lives. Why wouldn’t they impact our portfolio, too? But the truth is, presidential elections are relatively unimportant when it comes to the markets, at least in the long-term.

A quick look at history bears this out. Historically, the S&P 500 has gone up 10.8% under Democratic presidents and 5.6% under Republican presidents.⁴  That’s not a large difference and can be attributed to a whole range of factors besides politics.

Either way, the markets tend to go up over time. One thing I’ve noted in recent years is that as elections get more partisan, so too does the rhetoric about how the candidates will impact the markets. For example, here’s the opening sentence from a CNBC article published on November 3, 2016, shortly before the election:

Wall Street’s long-running view that Hillary Clinton would easily become the next president has been replaced by a new fear that Donald Trump could win, and it probably won’t be a pretty picture for stocks if he does.⁵

Here’s a snippet from an article in the New York Post written a few months before Barack Obama was first elected:

…it’s hard to see how a President Obama would be good for Wall Street. He wants to raise the capital-gains tax…[which] would be great for the tax-shelter business, but stocks would tank…in other words, the markets could fall further from their already-beaten down levels once the street begins to focus on an Obama presidency.⁶

Both these predictions ended up being wide of the mark. In the first year of President Obama’s presidency, the markets rose 23.45%.⁷ In President Trump’s first year, the markets gained 19.42%.⁸

Doom and gloom is predicted more and more with each election. Yet the markets keep going up over time. This is exactly why, overall, we are long-term investors.

But we will not sit by and watch your assets deteriorate. As usual, we’ll be watching our indicators like a hawk, and when we see trouble brewing, we will act. On the 22^nd, for example, a signal alerted us to weakness developing in our TQQQ position (an ETF, based on the Nasdaq’s top 100 companies, we hold in our growth-oriented portfolios). ​​  We sold that position and now wait for further evidence of weakness, at which time we’ll take on defensive positions and lighten up on long positions.

As a rule, we like to keep politics out of your portfolio and instead focus on our technical indicators. It’s true that Trump and Biden have different economic policies, and some of their policies will affect the markets to a degree. But the markets reflect millions of investment decisions by millions of investors. The president is just one ingredient. Far more important are supply and demand, innovation and invention, mergers and acquisitions, the ebb and tide of trade, and a host of other economic developments both large and small.

Making major investment decisions based on politics alone makes little sense. Instead, we’ll make our decisions based on what the market has to say. 

So, what does the election mean for the markets? In the short-term, potentially a lot. In the long term, probably not much.

After Trump and Biden Are Gone

2020 has been a long, crazy year. It’s possible the next few months could be even crazier. But in the grand scheme of things, they are still just a few months, and this is still just one year. We’ll be investing long after Trump and Biden are both names in the history books.

In the meantime, always remember that my team and I are here for you. We’re happy to review your portfolio, answer your questions, and address your concerns.

Thank you for the trust you’ve placed in us, and please let us know if we can ever be of service. Be well, stay safe, and enjoy the rest of your year!

Sources
¹ “S&P 500 Historical Prices,” The Wall Street Journal, https://www.wsj.com/market-data/quotes/index/SPX/historical-prices
² “When Will We Know the 2020 Presidential Election Results? A Guide to Possible Delays,” The Wall Street Journal, https://www.wsj.com/articles/will-we-know-who-is-elected-president-on-election-night-a-guide-to-possible-delays-11596629410
³ “Why stock market investors are starting to freak out about the 2020 election,” MarketWatch. https://www.marketwatch.com/story/why-stock-market-investors-are-starting-to-freak-out-about-the-2020-election-11600964863
⁴ “Democratic presidents are better for the stock market and economy than Republicans, one study shows,” Business Insider. https://markets.businessinsider.com/news/stocks/stock-market-election-democratic-republican-presidents-better-performanceeconomy-gdp-2020-8-1029528932#
⁵ “This is what could happen not the stock market if Donald Trump wins,” CNBC. https://www.cnbc.com/2016/11/02/this-is-whatcould-happen-to-the-stock-market-if-donald-trump-wins.html
⁶ “Wall St. Death Wish,” The New York Post. https://nypost.com/2008/08/04/wall-st-death-wish/\
⁷ https://tickertape.tdameritrade.com/investing/can-election-predict-market-performance-15555
⁸ “S&P 500 Historical Annual Returns,” Macrotrends, https://www.macrotrends.net/2526/sp-500-historical-annual-returns

​ 

Investment advice offered through Research Financial Strategies, a registered investment advisor.
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Dear Clients, Soon-to-Be-Clients and friends,

Well, it looks like the party’s over. The S&P 500 has plunged through several levels of support. Take a look. Here’s the chart.

This chart shows the S&P when it was 3,332. Now, as I write, it sits uncomfortably at 3,319, down 1.12%. The DOW is down .88%. The Nasdaq has plunged 1.30%.

Yesterday, we took steps to protect our client portfolios. We have experienced extraordinary gains in our growth portfolios, but believe that the market is steadily approaching a strong market downturn. Therefore, we bought a rather significant position for all accounts in SQQQ, which gives us 3x the inverse of the QQQ (the Nasdaq). Thus, right now, the Nasdaq is down 1.30%. Our SQQQ position is up 4.01% on the day.

That gain will shield losses in long positions.

You might ask why we haven’t bailed on long positions. Well, we did flush out all positions in TQQQ (a long position 3x the gain in the QQQ). Also, you might have noticed that over the past week, we have taken profits on some long positions to protect your gains and to raise enough cash to take on the SQQQ short position yesterday.

But getting out of long positions can often be the wrong move. The markets have a nasty habit of forming what are called “whiplashes.” They can drop, and make everyone’s gut drop, and then turn back up on a dime. Those who’ve exited must then scramble to get back in.  

So, we prefer to use our system of basically neutralizing any gains or losses in turbulent stock markets. It has worked in the past. It will work in the future.

It’s hard to say where the markets will go from here. All three main indexes have built out chart patterns known as “Head & Shoulders” (not the shampoo!). These structures are always bearish and point to a decline of about 10%. The S&P could hit 3,000.

The key thing though is this: We are watching. We are ready to move when our indicators tell us to. We are using our discipline, and, we think, that’s why you want us to do what we do. It is extremely hard for an individual investor to have a system and truly stick to it.

So, sit back. Relax. Watch the elections unfold. They should provide quite a show. We do have some opinions on the impact the elections might have on the markets. Watch your inbox. We’ll send an election update soon.

 Cordially yours,

 Jack Reutemann