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I’m recording this episode on Election Day, so perhaps we already know which candidate won the presidency—and maybe we don’t.
But roughly half of people are going to be disappointed. And in my experience investing and coaching other investors through elections, I know many of you are feeling a bit uneasy about the future. You might even be considering going to cash with a portion of your portfolio or making some other kind of tactical change.
Those feelings are totally normal, so let me tell you what nearly a century of data says about today’s situation.
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The Limited Impact of Politics on the Stock Market
Let’s start with a simple fact: no single president has ever dictated the stock market’s long-term trajectory. Markets are driven by countless factors—consumer demand, innovation, interest rates, global trade, and more. Sure, policies can create a little wind in the sails for certain segments of the market, or a bit of a headwind, but presidents don’t hold the wheel.
Source: Dimensional Fund Advisors
Source: Dimensional Fund Advisors
Source: Dimensional Fund Advisors
Source: BlackRock
Source: BlackRock
Source: BlackRock
Source: BlackRock
Source: US Bank Asset Management Group
Ultimately, the stock market doesn’t belong to any one party or administration. It belongs to the people and the companies they create.
Think about it: When you invest in the stock market, you’re buying into the future earnings of the underlying companies.
No matter who wins the election, do you think McDonald’s will stop trying to sell as many cheeseburgers as possible? Will Starbucks suddenly give up on selling coffee and sandwiches? Will Apple decide not to push for more iPhone sales? Will NVIDIA stop making computer chips, or Tesla stop building cars? Of course not. These companies will keep innovating, keep competing, and keep finding ways to grow. And as a shareholder, you’re along for that ride.
Remember, stock returns are driven by: earnings, cash paid to shareholders (via dividends or buybacks) and changes in valuation
The Strength of America’s Economy
Even when things look uncertain, this country has proven time and again that it can adapt, innovate, and come back stronger.
In 1992, the Competitiveness Policy Council, a committee advising America’s president and Congress declared: “On present policies and performance, the United States is condemned to slower growth than the other main industrial countries for the foreseeable future.” This statement came at a time when many people were concerned that the US economy was losing its edge to foreign nations, especially Japan and Europe.
The opposite turned out to be true.
In 1990, America made up about 40% of the GDP of the G7 group of advanced economies. Today, America’s GDP is up to nearly 50% of the G7 group of advanced economies. And on a per-person basis, America’s economic output is 40% higher than in Western Europe, 60% higher than Japan. In fact, average wages in Mississippi, our poorest state, exceed the averages in the UK, Canada, and Germany.
Since 2020 alone, America’s real growth has been an impressive 10%, nearly three times the average growth rate of the other G7 countries. Even among the G20, which includes emerging markets, the U.S. stands out as the only country whose output and employment are above pre-pandemic expectations, according to the International Monetary Fund.
There are several reasons for the strength of our economy. One is the size and scale of our consumer market. When a product is developed in one state, it can easily spread to 49 others, which allows ideas to scale fast. This large domestic market means companies can grow big, quickly. And our labor market is huge, flexible, and connected, which means companies can draw on talent nationwide and adjust to economic shifts with relative ease.
Another strength? America has the world’s largest and deepest financial markets, making it easier for startups to find funding and for big companies to raise capital. That’s a huge advantage because it means innovation isn’t just an idea—it has the resources to grow and thrive here. America’s financial ecosystem also keeps pulling in some of the world’s best talent, feeding a cycle of growth and opportunity.
Challenges and Balanced Optimism
Of course, it’s fair to acknowledge that America has its challenges. Our healthcare costs are high, income inequality is a real concern, and our life expectancy is shorter than in many other developed countries.
There are also material fiscal concerns as our debt-to-GDP ratio has soared since the Great Financial Crisis in 2007. Alarming as that situation seems, it’s impossible to know how much debt is too much, and these three episodes dive deeper into this topic if you’d like to learn more:
- EP 157: Why The US Dollar Rules The World: A Deep Dive Into Reserve Currencies
- EP 158: Will The US National Debt Cause Problems Soon?
- EP 159: The Sustainability Of Social Security And What It Means For You
It’s also fair to point to tailwinds that may provide less of a boost in coming years. For example, the US shale boom was a major contributor to growth over the past two decades, but the rise of renewable energy means that plentiful oil and gas may not offer the same advantages, and the US seems to be lagging behind other countries in the transition to cleaner power.
Another consideration is the incredible outperformance of US stock markets relative to the rest of the world, leaving US equities trading at very rich multiples compared with those in other countries—a topic we covered last week in great detail—so some reversion to the mean appears inevitable.
Politically, we do seem to have an unusual tendency for self-harm, but we also have seen our political system work well in times of the economy’s greatest need, such as the Great Financial Crisis and the pandemic.
The Drivers of Economic Growth
Earlier I referenced the drivers of stock market returns. Drivers of long-term economic growth are equally simple:
- Productivity
- Population growth
The foundations of productivity are firmly entrenched in the United States—we are have a giant, competitive domestic market that is home to many of the world’s best universities and the sanctity of the rule of law. Even now, we’re seeing how the flexibility of the American economy allows for quicker adaptation. Innovation continues at breakneck speed in technology, medicine, and sustainable energy. We’re not just keeping up with global competition; in many cases, we’re setting the pace.
When looking at the populations of competing nations, the United States has a higher fertility rate and better ability to absorb immigrants. That’s why the UN projects the US population to account for the same 4% of the world’s population in 2100 as it does today. Meanwhile, China’s share of the global population is expected to fall from 18% to 6% and the European Union is expected to decline from 6% to 3.5%.
Being an optimist doesn’t mean ignoring potential challenges. But you can’t ignore that the essential ingredients for a strong US economy look as strong today as they have at any time in the past thirty years.
Long-Term Investing in America
So, let’s bring it all together. Whether you’re thrilled, frustrated, or indifferent about the election result, remember that your long-term investment strategy isn’t built around one administration.
Markets may react in the short term, but their real growth is rooted in productivity, innovation, and the pursuit of opportunity.
The best action you can take? Stick to your plan. Trust in the resilience of America’s economy. And maintain that optimism—because optimism about America isn’t just hopeful; it’s realistic.
Thanks for tuning in to The Long Term Investor. If this episode was helpful or gave you a new perspective, consider sharing it with someone who might feel uncertain about what comes next. And remember to keep your focus on the long term.
Resources:
- Optimists Will Prevail
- EP 157: Why The US Dollar Rules The World: A Deep Dive Into Reserve Currencies
- EP 158: Will The US National Debt Cause Problems Soon?
- EP 159: The Sustainability Of Social Security And What It Means For You
- EP 176: Why The Next Decade May Bring Lower Returns—And What It Means For You
The Long Term Investor audio is edited by the team at The Podcast Consultant
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