Ken Moraif:
Hello everyone, and welcome to our Market Alert video today, which is September 6, 2024 and what we’re going to do this week is we’re going to look at history, and we’re going to see how the market behaved when we had an election year, and specifically in the last three, four months of the year, because there’s some remarkable similarities that I want to share with you, and to help me to do that, I’m going to ask Jordan Roach, our Director of our Investment Oversight Committee, to join me. So Jordan, hi there. Welcome. So you’ve done some research into how the market has behaved over, you know, the last, what, seven election cycles. And so can you kind of walk us through a little bit of what your your analysis and what your research has shown us?
Jordan Roach:
Sure, yes, let me pull up my screen here, and this is, it’s been a good, you know, interesting study here. As as you know, I know we’re getting more and more clients calling and ask us, like, what do we expect going forward? Obviously, there’s a lot of noise going on with the Fed, but now we got election, so it’s what I want to do, is just a quick study into in the last seven cycles, to see if we have patterns or anything we can lean on that help us set expectations of where the market could go into the end of the year. So the first one we’re looking at here, this is the covid year, right? So this is 2020 obviously that year was a year of a lot of volatility, and that volatility, you know, picked up, and we saw that again in election cycle. So on this chart, I basically have from September 1 of 2020 to the end of the year for the s&p 500, right? Because that’s the index that we’re using broadly just to track the state of the market. And what we’re see here is that September, we had a sell off right now, historically, September is about is kind of a bad month seasonally, on average, even absent election years. And we saw this in election year continue. So we saw really two corrections that year, and the market largely trended sideways to early November, right when election cycle is that first Tuesday, kind of November, and then it found its footing, and then it rallied into the end of the year. And ultimately, even though it, you know, start off twice there, from September through the end of the year, you saw about a 6.51% return, if you kind of held all the way through there. So it would be an okay year.
KM: And it looks like it kind of started, what in September. So this was ahead of the election. So there was kind of a, maybe some increasing uncertainty over who was going to win and where, which way policy was going to go, which way, you know, taxes, etc, would go. So there’s uncertainty. So there was that, that sell off there, that you’re showing but once that uncertainty went away, it looks like it really rallied after that.
JR: Yes, that’s exactly right. I mean, obviously, you know, that’s a covid year, so you’ve a bunch of uncertainty. And then I think that year, the election certainly mattered of who could come in with their policies and maybe fix the kind of the kind of a crisis we were in. And so if we just look at what type of losses did the market experience, this is showing percent off high. So it’s a drawdown, which is, you know, where the max amount the market was, the distance from there to the bottom the market any given point. And so you see in September here, this sell off, we look at this line to the right was it crossed 8% went down to nine. So the total loss for that year was about 9% in that September month. And then you had an eight percenter that happened again, not shortly after, but again, once markets, you know, were kind of priced in things, and we got confirmation of who was going to be in the seat, the market found its footing and it rallied to the end of the year, right? So what this means is, when it says 0% at the end here, it says the market reached its high at the end of the year. So it ended up being okay, okay.
KM: Now, so what other what other years have you looked at?
JR: So I went through 16, really all the way back to 96 just to see with recent history, recent state of the markets, how they were acting. So this is 2016 right? So, so this year again, there was other noise going on in the background, right, with different relations, with tarrifs, all these things. But you see a similar thing in 16 that largely the market up to the election went sideways, if not sold off, largely, right? So it sold into it as uncertainty is kind of getting worked out. Markets are trying to get ahead of things, and ultimately, when the dust settles, when confirmations hits, market rallied pretty well from down at, you know, minus 4% around the election, it ended up being up 3% so you see a basically a 7% rally after the election. So that’s a healthy thing. And again, if we look at kind of similar to last chart of, well, how much did it sell off at that point? This wasn’t as much as covid, but this one sold off, you know, almost 5% so it’s kind of a normal correction. Probably didn’t feel healthy and fun at the time, but about a 5% sell off that we saw until ultimately, we rallied to the end of the year.
KM: And this was from the beginning. So all these charts are looking at from the beginning of September, correct, into the end of the year, right?
JR: Kind of that where we are right now, that September period to the end of the year in an election year, what’s going on? Can we see any patterns here?
KM: Yeah, in 2016 was not as big of a sell off as the previous chart that you show 2020 but it’s still there was, there was a down into the election, and then an up afterwards.
JR: Yes, right now, this is 2012 again, 2012 different variables here, like this one was coming out of a little bit of a Eurozone crisis, and some currency is, you know, uncertainty with an election year. And so this one again, you’ll see it come through all the way into November here, where it kind of bottoms mid November is the markets largely sold off, right? So we had a sell into the election. Market found its footing, and we rally into the end of the year. And if we put numbers to that, what that looked like is, you know, we crossed to about a 7% sell off that year. So you cross the 6% mark down almost to the bottom. And so, you know, that’s a 7% and change sell off. So that’s, that’s a pretty good one, right? So once we get to 7% we’re getting to almost, technically, what a correction is. And then ultimately, the market found its footing, you know. And recaptured some of that. So that’s it again, the 2012 cycle, okay, yeah. And then if we just kind of equate, like, let’s just say, what happened since 96 again, kind of more recent times, more recent election years, more recent market environments. What’s going on? So in 2020, if you look at the return on the market itself, it made 6.51% through the end of the year, so September through the end of December. If you looked at the max drawdown, we’re seeing a little bit under 10% so almost a full correction and a bottom actually.
KM: And by max drawdown, you’re talking about from from the beginning of September to where it bottomed out, how much did it go down? So in 2020 that was the 9.6% there, and it bottomed on September 23 but you also have october 3 in what happened there?
JR: That one you had to go through a 9.6% or an eight percenter. So that eight percenter hit on October so that was almost a double sell. So you hit the bottom. It rebounded, sold off. Another eight found its footing and rallied through the end of the year.
KM: Man, covid had all kinds of gifts for us, didn’t it?
JR: That was a good one. That was a good one. That’s right. So you go 2016 you know, 3.53% return for that four month period, and then the actual sell off. It was minus 4.63 it found its footing like right around election day, right? So November 4 is where it found its footing. That’s where the market bottomed and then rallied. You go 2012, again, that was more of a sideways market. But 1.39% people will take it, but that’s a bigger one, right? So minus 7.67% was the bottom. That’s how much the sell off was. So a little over 7% sell off market bottomed around November 15, and then moved rallied into the end of the year. So, you know, these first three instances, all those are coming kind of later in the cycle, around election time. 2008 now again, this is, this is the doozy. So 2008 markets just, you know, fell out in the back part of that year. So from September through December, just that four month period, you saw almost a minus 30% decline.
KM: Yes, I remember that one vividly. In fact, in October is when Lehman went under, and the floor just fell out from under the market. And so, you know, this was Barack Obama’s when he was elected, but I don’t think we could say that it had anything to do with Barack Obama. This was, this is entirely because of the bank crisis and what was happening with Lehman, and then, you know, all the other banks who are following on after that. It was a terrible time. I remember it, fortunately, though, with our Invest and Protect Strategy, we were spectators, not participants. You know, there’s, there’s a huge difference between being a spectator to an event like this and being a participant. And fortunately, our strategy helped us to be out during that year and did not experience that, that 41% drop that happened there.
JR: 41% in four months. Ken, right? I mean, you remember that way better than I do I mean, and that that’s that is horrible. That’s a painful and so November 30 was where it actually bottomed, and then it kind of went sideways, picked up a little bit of that back and through the end of the year. But again, 2008 is a different deal. It’s an election year, but you have a recession overlaid onto it, and then you go 2004 so that period and showing the graph, but just to kind of see the data behind it, you know, from September, the end of the year, almost a 10% return. So it’s a pretty healthy back half of the year. Um, but again, there was a 4% correction that occurred, right? So we saw that little bit of a sell off October 22 so right before the election,
KM: That was my birthday. October 22nd was my birthday.
JR: I guess so the market didn’t give. It wasn’t too bad of a gift there, minus four.
KM: If anyone is wondering, I was 20 years old in 2004 on my birthday there. So if you want to do the math.
JR: that’s pretty good. So in 2000 2000 will look closer to 2008 I mean, 2000 that was a multi year decline. That was y2k, dotcom and that was really a two and a half year sell off, but 2000 was the start of it. And so September through the end of the year, you’re down 13% so that was a start of the sell off. And I believe in that time there was, there was, you know, a triggering event there too.
KM: So so stop sharing your screen for a sec here. So so let me What do you conclude from all of this? You’ve looked at all this, what’s our what’s our takeaway? You know, clients are asking, you know, what’s going to happen with the election? What should we do? Should we get out? Should we stay in? You know, what? What do you conclude from all of that?
JR: It’s hard to know anything definitive. I would say history has suggested that, you know, generally speaking, we’re gonna see volatility probably pick up, up into the election time. So we’re gonna see movements day to day, and then broadly, month to month, it’s, it wouldn’t be improbable to see sideways to some sort of decline, some sort of corrections. The market’s kind of pricing in where we’re gonna be in November. But then absent, you know, an economic slowdown, absent a recession that starts getting priced in, like we saw in 2008 or 2000 markets usually find their footing, and then they’re going to run up into the end of the year, and hopefully, you know, recover some of that, or book some nice gains. So that’s the question.
KM: It sounds like. What you’re saying is that if we do get a big drop, unless it’s like a y2k or 2008 where there’s a very obvious reason why the market is tanking like it is. But otherwise, if the market does go down five or 10% it’s not a reason to panic and sell. It looks like, based on history, that it might actually be a buying opportunity.
JR: I think that’s right. I mean, I think that’s more common than not that it ends up being a buying opportunity. So that would be interesting to see where we play out this year.
KM: Yeah. So again, you know, past performance does not guarantee anything, right? It’s just interesting to look at. But there is another expression that says that if you don’t learn from history, you’re doomed to repeat it so so we can take both of those and pick which one we prefer for purposes of you know how we want to conclude it, but Jordan, thank you for your for the analysis here. That was very interesting. And for those of you watching who are wondering, you know what our recommendation is based on all this, it’s just what Jordan said, and that is that we most likely will get some reduction, some sell off. It could be anywhere from five to 10% but if it did happen, we look at that not as a reason to panic, because right now, we’re not in the middle of a recession, we’re not in the middle of a credit crisis, we’re not in the middle of a dot bomb, you know, we’re not in the middle of any of those things, and so therefore there’s no exogenous event that’s looking like it’s it’s going to cause it to fall off a cliff. And that being the case, we would see a correction of five to 10% as a buying opportunity. And if we don’t have anything to buy, then stay the course and grit your teeth and and play through it. Right? Exactly, right. All right. Well, thank you, Jordan for sharing all of that with you. Very interesting analysis and ladies and gentlemen, thank you for watching this video. I hope it finds you healthy, wealthy and wise, and we will talk soon.

Please note: transcript has been modified after the time of recording. 

Economic indicators and stock market performance cannot be predicted. Opinions expressed regarding the economy and the stock market belong solely to Ken Moraif on behalf of Retirement Planners of America and may not accurately portray actual future performance of the economy or stock market outcomes. Opinions expressed in this video is intended to be for informational purposes only and is not intended to be used as investment advice for individuals who are not clients of Retirement Planners of America. All content provided is the opinion of Ken Moraif, CEO and Founder of RPOA Advisors, Inc. (d/b/a Retirement Planners of America ) (“Retirement Planners of America”, “RPOA”). ©Copyright 2023