Nancy Tengler


Every election cycle I field the same inquiry from my clients: Don’t you think stocks will sell off if my candidate loses? My response is always the same: Don’t invest your politics.

Though most investors handicap the election on a daily basis, savvy investors should focus on long-term economic trends that are likely to continue no matter which party takes the White House, the kinds of shifts that will have a profound impact for years, even decades.

Here are three trends to consider:

Manufacturing is on the rise

Manufacturing jobs are returning to the USA, which will drive employment growth, productivity and corporate margins. Though the loss of retail, entertainment and travel-related jobs is tragic, the total impact on the economy will be less dramatic than during the first decade of this century when U.S. manufacturing jobs were exported to China in droves (experts estimate more than 2 million jobs were lost).

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U.S. capital expenditures (capex), the money companies put into plants, technology and equipment, declined once China joined the World Trade Organization. The correlation is sobering. Once China’s cost advantage began to fade, corporations began to spend again. That spending was politically neutral: Capex rose during President Barack Obama’s administration and continued under President Donald Trump. Productivity has been rising. The trend has accelerated and is likely to continue.

Technology will keep driving growth

Companies as diverse as McDonald’s, Honeywell, Ecolab and Walmart, to name a few, are aggressively digitizing their business models. The trend is accelerating, not stalling. Working and shopping from home, online banking and payment systems, streaming and gaming, 5G, automobiles full of semiconductors, cloud, data aggregation and cybersecurity will continue to experience robust demand and sustainable growth.

McDonald’s digital menu lists popular items.

The digital economy comprises 9% of GDP. Even more important, “new economy” capex spending (software + tech equipment + research and development) has exceeded “old economy” spending on structures and industrial and transportation equipment for the first time.

Tech stocks have outperformed for years, leading some experts to compare shares in those companies to those that burst in the tech bubble of 1999-2000. Yet high multiples are based on trough earnings in an easy monetary policy environment. In 1999, the U.S. central bank was raising interest rates, and the Fed funds rate hit 5.5% by the end of 1999. At the height of the bubble, Cisco (CSCO) traded at a multiple well in excess of 130 times peak earnings. Today’s multiples, though above average, are nowhere near bubble valuations and are likely to normalize when earnings growth returns in earnest in 2021.

Global growth

The global purchasing manager indices (PMIs) for September continued their optimistic trend as 14 of 18 regions strengthened and/or expanded. If we are indeed in the early stages of a new expansion, and the monthly numbers indicate that is the case, a typical economic expansion lasts, on average, eight years. Global PMIs are highly correlated to corporate profits. Good news for the nascent bull market.

Strap in. The next few months may be turbulent. Elections have consequences, but these long-term trends are embedded in the economy and will continue to emerge despite where the political winds blow.

Author: Nancy Tengler

Source: USA Today: 3 reasons stocks will probably rise no matter who wins the presidential election

If you check your 401(k) statement anytime soon, you should feel much better than you did a year ago. Your investments are doing well.

But why? Bad news and uncertainty are everywhere: Trade wars, impeachment, flat corporate earnings and a looming presidential election. Add to that muddy mix a slowdown in global growth and central banks worldwide cutting interest rates to shore up sluggish economies.

Our Federal Reserve is also cutting. Since July, the central bank has trimmed rates three times, bringing the federal funds rate down to a range of 1.5%-1.75%. And that’s been good for stocks and bonds. The Standard & Poor’s 500 stock index is up over 20% this year and the Bloomberg Barclays US Aggregate Bond Index is up 8.3% year-to-date.

In short, interest rates matter to both bond and stock performance. Look at history. Back in 1995, the Fed also cut rates three times. What was the result? Those cuts reignited the economy and generated a cumulative total return for the S&P 500 of 251% over the subsequent five-year period.

With that encouraging precedent in mind, now’s a good time to look over your 401(k) and consider these tips for your stock and bond holdings.

Don’t let the market decide for you

Because 401(k) balances are tax-exempt, you have the luxury of adjusting your investments without worrying about taxes. If a particular fund or asset class has grown to an outsized percentage of your holdings, sell those holdings and reinvest the money elsewhere. By not trimming, you run the risk of riding an investment up and back down. Cashing in on your gains, even if you do it early, is prudent and results in a portfolio that reflects your desired allocation and risk tolerance.

Don’t get into weeds on Fed, politics

By the time most investors have enough information to make a change to their portfolio, the market has already reacted and it is too late. The fund manager in your chosen 401(k) investment should be analyzing and anticipating and generating excess return for you. If he or she is not (over a reasonable period) pick another fund. Your job is to keep your allocation in line with your risk tolerance.

Don’t time the market

Whatever you do, don’t try to time the market. While tempting, it almost always costs investors total return and generates significant underperformance. Manage your asset allocation to your objectives and remember that the beauty of a 401(k) is you are dollar-cost averaging by taking money from your paycheck every two weeks and putting it to work in markets. If you are unwilling to manage your allocations and would rather invest in a target-date fund, that is up to you. But you are surrendering the most important control – how much am I comfortable owning in stocks and how much in bonds?

The more engaged you are in managing your money, the better shape you will be in when you finally retire. In the meantime, you can thank the Fed, instead of your lucky stars. So far this year is a doozy.

Author: Nancy Tengler

Source: Finance. Yahoo: The Fed just cut rates again. Here’s what you should do next with your 401(k)

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