PO Box 2160
Marietta, OH 45750
(740) 373-4877
(800) 860-4871
www.flemingwatson.com
March 31, 2016
Over the past 10 months, there has been plenty of hand wringing over the state of the stock market.
Many financial pundits have been talking about the soon-to-happen bear market—which as you remember is a
price decline of 20% or more in stock prices.
However, this doomsday scenario has yet to
materialize.
Instead, what investors have
witnessed is a correction which can be
more accurately described as average. Since
1980, the equity markets have experienced a
decline, on average, about one time per year,
and the average decrease of those events is
14.3%.
Since May 21, we have seen the first
correction in more than three years, and the
decline (so far) has been 14.3%.
The graph above represents the cumulative percentage change in price
The correction didn’t happen in
for the S&P 500 index. (Source: Standard and Poors)
a straight line. Rather, it dropped 12.3%,
recovered most of it, before dropping 13.3%,
and it has recovered to a point where it is within 3% of the all time high.
Equity Returns and Presidential Elections
This is an election year, and it has been rather interesting within both parties. We do not know who will
eventually win the White House nor—and equally important—who will control the legislature. It was a popular
topic of conversation with our clients in year end meetings, and many wanted to know how the stock market has
reacted during major election cycles.
Caution needs to be used when looking back at any type of historical investment information. This is
a look at what happened in the past. The data has no predictive value, and it certainly should not be used to
influence any major asset allocation or investment decisions for the future.
Since 1948, there have been 17 presidential elections. A Republican has won nine times, a Democrat
eight. In 14 of those years, the stock market improved by 5.5% or more. One time, stocks squeezed out a small
gain of 0.47%, and twice, the market declined (See the chart on page 2).
The best year was in 1980 when Ronald Reagan defeated Jimmy Carter in the general election. However,
when President Reagan ran for re-election in 1984, the stock market only managed a 6.27% gain.
The worst year was in 2008, when President Barrack Obama was elected for his first term. This year
was part of the worst downturn since World War II. Equity prices reached their then current all time high in
November of 2007, and finally hit bottom in March of 2009. The total decrease was in excess of 50%.
The other negative year happened when George W. Bush was elected for his first term in office. Though
the decrease in 2000 was modest, it was
For reasons I have never understood, people like to followed by two more consecutive years of
hear that the world is going (down the tubes). Yet negative returns for equities. When he ran
for re-election in 2004, the stock market
pessimism has consistently been a poor guide to improved by 10.88%.
Since 1948, these 17 calendar years
the modern economic world.
have
produced
a compounded return of
—Dierdre McCloskey, economic historian
308%. The cumulative compounded
return for the years when a Democrat
was elected to the White House
has been 47.84%. For the years
republicans won, the compounded
return was 176.14%.
Assigning a cause and
effect relationship of the winning
party and the end results ignores
the enormous complexity of the
investment markets.
Trying to
identify a pattern in this information
to develop an investment strategy is
tempting, but it is also dangerous
and can easily lead to very costly
mistakes. Those errors can adversely
impact your lifetime returns.
In November, someone will
be elected President of the United
The graph above represents the total return (including dividends) of the S&P
States. The control of the legislature
500 (and it’s predecessors) index for the calendar year in the year of a presimay or may not change parties.
dential election going back to 1940. Source: Morningstar
Four years from now, we will do it all
again. Regardless of what happens,
the newly elected leaders will try to put their stamp on policies which will have an impact on individuals and
companies. There is no way to know, in advance, what the impact will be on the investment markets.
With all of the political noise in the headlines, there is an important thing to remember. We are investing
in companies who allocate their capital efficiently in the pursuit of maximizing their profits. The policies enacted
by the government can help or hinder the leaders of these businesses in their pursuit, but it has yet to completely
stop them.
One of the most prominent characteristics of being an investor is dealing with an unknowable and
unpredictable future. It requires all of us to place faith in these businesses to continue to seek ways to earn and
grow profits over long periods of time. The shorter-term results are not always what we like to see, but generally
our patience and perserverence are rewarded.
We appreciate your continued business and are thankful for the trust you have placed in us to help you
plan and reach your long-term goals.
Sincerely,
James A. Watson, Jr. Registered Representatives, Maplewood Investments
Financial Advisors, MIAI
Members, Fleming Watson Financial Services
Neal E. Watson, CFP®
Insurance Products Offered Through Fleming Watson Financial Services, LLC
Advisory Services Offered Through MIAI, Inc.
Investments Offered Through Maplewood Investment Advisors, Inc., MEMBER FINRA, SIPC
The S&P 500 is an unmanaged index. An investment cannot be made directly in an index. Past performance is not indicative of future results. Any
rates of return illustrated are not guaranteed nor are they representative of a real investment. Your actual results could be better or worse and will most
likely be different than what is illustrated. This is not a solicitation to buy or sell any particular investment or security. Careful consideration should be
given before making any investment decision. The opinions contained herein are those of Jim and Neal Watson and are not to be considered legal or
tax advice. The information herein has been derived from sources believed to be reliable, but this is not a guarantee as to the accuracy and does not
purport to be a complete analysis of the security, company, or industry involved. Additional information is available upon request. These are not the
opinions of Maplewood Investment Advisors, Inc. its officers or employees.