While reading an article on the United Kingdom’s financial website Fundstrategy.co.uk, I found this eyebrow-raising observation:  The biggest concern of (at least some) investors in 2017 is the possibility of ‘Trump failure’. I would have thought that the #1 concern might have been healthcare reform or tax policy, or maybe even that the culprit would be another possible government shutdown.

So, despite investor anxieties about the uncertainties surrounding the Trump presidency, US equities have truly done extremely well since the last presidential election. (S&P Index* up 13.6% as of last night). On the one hand we have the suggestion of an uncertain presidency and on the other hand the actual fact of excellent market performance.  These two facts seem to be at odds with one another. So, I pose the question – what if one were to make investment decisions based on presidential uncertainty? Let’s have a look.

We found a study that used Gallup presidential approval ratings as a proxy for presidential sentiment. Studying polling history, we found that presidential approval numbers have generally declined over time — perhaps as a result of increased US political polarization. The first president to be subjected to Gallup polling was Franklin Roosevelt. He had the highest average rating at 72.3% favorable. On the other side, Donald Trump has the lowest average approval in the entire history of presidential approval polling. Also, we unsurprisingly found there is very wide dispersion between presidents. More surprising is the dispersion within individual president’s highs and lows. For example, just after the 9/11/2001 attacks George W. Bush had the highest immediate approval rating of any president in the study at 89%. However, by October 2008, (three months before he left office) his approval rating had dropped to 25%, a level not seen since the end of the Nixon presidency.

See this chart: US Presidential Approval Ratings

To evaluate the relationship between approval ratings and stock returns, we compared ratings and the level of the S&P 500 Index from the beginning of Nixon’s first term (1/23/1969) thru this past July. Polling numbers before 1969 were less reliable due to methodology but there is plenty of data after that to provide a pretty good picture.

After some study, we defined high approval ratings as greater than 60%, and low ratings as less than 40%. The great question then becomes – does the market do better when the public approves or disapproves of the president?  Average returns for all periods were 8.3%. Average returns for a 12-month period after a high approval number were 8.85%. Ater a low approval number average returns for a 12-month period were only 0.44%. Amazingly enough (to me, anyway) is that the S&P performed the best following a polling result between the 40 and 60% levels. In the 12-month periods following these ‘middle polling numbers’ the S&P Index returned an average of 10.45%. You can see how the approval numbers have changed over time on the chart.

It is obvious that this is not a workable system for timing the markets. I guess the takeaway is that pretty much any system of analysis that you might use to determine your investment choices is likely to be better than looking to presidential polls for advice on investing strategies.

Research study from Gallup/DorseyWright
Market Return numbers from Fasttrack’s software database

Market Minute 9/29/2017 – Smallcaps Finally Showing Strength

Since the beginning of this year the naysayers have said, ‘yes, the market is good, but I don’t trust it because the smaller companies are weak’. That’s a valid criticism, as a healthy market requires that the smaller companies as well as the large ones, participate in a rally. So… good news today.  After having lagged behind their big brothers, the smallcaps are showing strength. As a matter of fact, over the past 3 months the largecaps as represented by the S&P500 Index*, are up 3.33%. And the smallcaps, as represented by the Russell Smallcap Index* are up 4.83%.  That’s some pretty good outperformance by the small guys… and a good sign that the current rally most likely has more time to run. 

Ronald P. Denk, CFP®
Investment Advisor
Denk Strategic Wealth Partners
10000 N. 31st Avenue, Suite C-262
Phoenix, AZ 85051

Phone (602) 252-8700
Fax (602) 252-8701
Toll-Free (877) The-Denk

www.denkinvest.com

This weekly article reflects news, commentary, opinions, viewpoints, analyses and other information developed by Denk Strategic Wealth Partners and/or select but unaffiliated third parties. DSWP provides Market Information for illustrative and informational purposes only. If you wish to receive this weekly commentary by email please contact us at 602-252-8700 or by e-mail at info@denkinvest.com.

Ronald Denk is an Advisory Representative offering services through Denk Strategic Wealth Partners, A Registered Investment Advisor. He is also a Registered Representative, offering investments through Lincoln Financial Securities Corporation, Member FINRA/SIPC.

Denk Strategic Wealth Partners is not affiliated with Lincoln Financial Securities Corporation. Information in this commentary is the sole opinion of Denk Strategic Wealth Partners. Past performance is no guarantee of future returns. All market related investments involve various types of risk, which include but are not restricted to, credit risk, interest rate risk, volatility, going concern risk, and market risk.

The Update provides information of a general nature regarding legislative or other developments. None of the information contained herein is intended as legal advice or opinions relative to specific matters, facts, situations or issues. Additional facts, information or future developments may affect the subjects addressed in this document. You should consult with an attorney, accountant or DSWP planner about your particular circumstances before acting on any of this information because it may not be applicable to your situation.

Lincoln Financial Securities and Denk Strategic Wealth Partners and their representatives do not offer tax advice. Please see your tax professional regarding your individual needs.

*The indices are representative of domestic markets and include the average performance of groups of widely held common stocks. Individuals cannot invest directly in any index and unlike investments, indices do not incur management fees, charges, or expenses, therefore specific index returns will be higher. Past performance is not indicative of future results.

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