Episode 14 - Midterm Elections & the Economy
In this episode of Blue Money, Kevin & Jim discuss the effect on the economy that the midterm elections have historically. Kevin offers an explanation for why we see the trends we do around election time. Jim explains the current situation and what’s at stake, then goes into running most likely economic scenarios based on the possible outcomes of this election.
Listen at 4:40 for what Kevin means when he says “it doesn’t matter.” The guys put the bipartisan impact on the economy in perspective without taking sides. This is an informative, timely episode that will help put your mind at ease if you are feeling unsure about the current political climate and how it affects your finances in the long term.
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Episode 14 – Midterm Elections & the Economy
Announcer: This is Blue Money, a finance podcast made for cops by cops. With us, you know your money safe. Lieutenant Jim Donnelley of the Bensalem and police department and cohost Kevin McGarry of Valley Financial Group, come together to help protect and serve your financial needs. This is Blue Money.
Jim: I want to welcome everyone back to the Blue Money Podcast. This is Jim Donnelly. I’m here at my co-host Kevin McGarry. And Kevin today. I thought today’s episode we should talk about midterm elections.
Kevin: Real quick, Jim, real quick. How about those Phillys?
Jim: Man, they’re doing pretty good, man. Surprising.
Kevin: You know, the last time they were in the World Series, what the market was doing?
Jim: It’s like 2008 man bombed, right? Yeah.
Kevin: It’s down 53%.
Jim: Across great time to invest.
Kevin: It seems like every time that Phillys going to the World Series, you know, we sacrifice a couple trillion dollars as an economy.
Jim: Well, I mean, it’s going to be huge drinks and everything again. You know what I mean? So I don’t know if that’s the audience one want to hear that. It’s typical of you man, mush. But besides that can hit upon the midterm elections that are coming up, November race. And the one thing that I keep looking at, I’m reading about historically there’s a strong correlation between the stock market performance and midterm elections. It’s well documented, 17 out of the 19 midterms since 1946, the market performed better in the six months following the election than it did prior to the election. So do you see that continuing, Kev?
Kevin: Yeah, I mean, we don’t have a crystal ball, but what I do know is the reason that historically you see those strong returns as the market likes certainty, there’s not like uncertainty. And when you come to these midterm elections like the ones we’re having today, Jim, there’s a lot of uncertainty and that is something the markets do not like. So once the politicians are elected, I think the market thinks and believes there’s going to, they understand what the policies are going to be, and that leads to a more consistent approach and investor sediment.
Jim: Do you think the combination with the high inflation out there, the war Ukraine and the linger in pandemic, this cycle to me is going to be extremely different prior to any midterm year prior to this. So do you think that as well, or do you think just don’t look too much into the [crosstalk 0:02:25]
Kevin: They’re real. Like when you’re going to the grocery store and you’re paying more than you did a year ago, or you’re going to fill up your car with gas and it costs you a lot more. It’s real. And people are going to take that into when they vote. But when we look at your money, Jim, and we go back and look at history, we’ve been through high inflation, we’ve been through wars, we’ve been through interest rate hikes, we’ve been through high gas prices before, and this market continuously goes forward. Yes, does it go down? But it goes up and I have no reason to believe that’s not going to continue.
Jim: Yeah. One thing I think we should look at, what’s at stake doing in midterms? A lot of people know on November 8th the midterms are coming, what’s really up for stake? So what’s going on, what’s up for stake right now? So the Democrats currently have a five seat majority leading in the House of Representatives and the Senate split 50 50 and the upcoming midterms, there’s 35 Senate seats are for election. Currently right now, 21 are held by Republicans and 14 are held by Democrats. And what’s going on with the house? What’s up for election for the house? All every seat 435 house seats are offer for election. So I thought it was going to be important to like, let’s look at the three potential outcomes of the 2022 midterm and see how it’s going to play out with the investing. So let’s just say for the election result, the Democrats get the Senate, Republicans get their house. What do we like to see? Or vice versa, it doesn’t matter as long as there’s a split, luckily policy results, it’s going to be limits, major changes to tax and spending policy, nothing’s really going to change that much. We’re still going to understand course.
Now, let’s say if the Republicans win the House and Senate, what do we like to see? You’re probably going to see strong headwind for the White House’s agenda, legislative gridlock, and bricksmanship. That’s what you’re probably going to see if Republicans win both. I’ll say if the Democrats win the House and Senate, what do we like to see? Democrats will probably press forward with the key initiatives we’re going to potentially revisit, build back better that agenda item and some other items that were put on ice right now. So that’s what I see Kev, what do you see with the potential outcomes of the elections?
Kevin: Well, basically look at his, approval ratings, 42%. And historically where the economy is in inflation is, that doesn’t bode well for Democrats, but to me, Jim, for your money long term it historically doesn’t matter. And what I mean by that is from 1961, we’ve had six Democratic presidents and six Republican presidents, and if you invested $10,000 into the S&P 500 index over that time, you’d be close, you’d belittle under 4 million in that investment. And that’s evenly split. And on top of that, if we look at, all right, let’s say it’s divided, since World War 2, a divided government between Democrats and Republicans, you know, the index is averaged 7.9% and the economy’s grew by 2.7%. The numbers get more attractive if one party is dominating everything versus the other, but they both do very well. Republicans would be at 12.9% since World War 2 and the Democrats would be around 9.9%. So historically, you know who’s in the house, it matters during that timeframe, but over the long term, it has not impacted growth in this country.
Jim: Yeah, I think the one thing, my final thought, Kev, is don’t let your political views overrule how you think about investing.
Kevin: It can’t.
Jim: If we look at the last two presidents and their administrative, we look at Trump and we look at Obama, their administrations.
Kevin: And people, they were personality’s people didn’t like, right, Jim?
Jim: No, exactly. You, you either support them or you really didn’t. And they both became identically in the market. You know, one was 16% and one was 16.3 respectfully. So they were very identical almost both of them. And once Democratic, once Republican
Kevin: Different [crosstalk 0:06:16]
Jim: And that averages way over 30 years of the 10.6. So they both did, both administrations did higher than the 10.6 that we’ve always seen for the last 30 years. So what’s that telling me? That tells me, don’t get caught up who the president is. Just keep investing. You always kind of preach you about that dollar cost investing for police officers, which means every time you’re getting a check, you’re putting some away, you’re trying to max out your 401, your 457. Just keep stockpiling money and do it religiously, constantly. Don’t get caught up who the president is. Have your long term, remember it’s going to be a marathon. This is not a sprint. So that’s why I want guys, remember, don’t get caught up. Don’t start, you know, if one president wins, I want to go to cash or I want to go. No, keep doing what you’re doing, stay aggressive, stay in the markets. It’s going to pay off, it’s going to boom. So Kev, what points do you want us to take away from? What’s the three main?
Kevin: I think you mentioned the most important one, don’t let politics or emotion get you off track, because it could be financially, it could be a great loss stay the course. Number two, make sure you have a financial plan and continue to review that plan, right? And lastly, be diversified through this, all this volatility. We’ve seen inflation before. We’ve seen high interest rate hikes before. We’ve seen high gas prices before. We’ve seen more before and we’ve gotten through it. So there’s no reason to believe, Jim, that we’re not going to get through this one.
Jim: And I like that. Kevin, great information for the audience. So Kevin, that’s going to wrap up the Blue Money podcast today. I want to thank all the listeners for listening. If they have any questions about today’s podcast or if they have any questions about the portfolios or investing in general, please do not hesitate to reach out to Kevin. Our contact information’s going to be in the show notes. Be safe out there. Let’s go Phillys, hopefully Kevin didn’t jinx it too much.
Kevin: Yeah, be safe and vote. Go Phillys.
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