Claire Corlett

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Fisher Investments on US Midterm Elections [2018]

Fisher Investments on US Midterm Elections [2018]

U.S. midterm elections are coming up in November. How do you expect that that shapes the markets
and our client portfolios? Let me step back and look at where we’ve been. Where we’ve been has been a Republican House
of Representatives and Senate, and Republican presidency. They’ve been able to get a few big pieces
of legislation through, the biggest one, of course, being the tax bill. The Republicans, as I think probably all viewers
know, have a slight margin in both chambers of Congress. We have what we have referred to and described
in the past as a new form of gridlock, where Republicans fight amongst themselves more
in the Senate than in the House of Representatives. In that, a lotta stuff doesn’t get through. Some in the House, some in the Senate, a lotta
stuff doesn’t get through. That’s a new form of gridlock that people
aren’t used to. Some gets through. What we’re gonna have after this election
is either, and I’ll come back to some detail, but Democrats taking the House by a little,
or the Republicans holding onto the House of Representatives by a little. The Republicans will hold on to the Senate,
and probably gain a seat or two. We’ll have either the same form of gridlock
we’ve had, where Republicans squabbling amongst each other with paper-thin margins can’t get
legislation through, or we’ll have the traditional old form of gridlock people have seen forever,
where the Republican Party has one chamber, the Democratic Party has the other chamber,
the Republican Party has the presidency, and legislation doesn’t get through. Whatever it is that you think is good, somebody
else thinks is bad. When you put through heavy legislation, the
people that don’t like it hate it more than the people who like it love it. You get increased political risk aversion. Political risk aversion falls after a midterm
election. It will fall after this midterm election. We can talk about the details of the election
and how it will look and why we might think it will come out this way versus that way,
but the fact of the matter is that there’s this long history, that I’ve written about
before, that we call the 87% miracle, which is the most consistently positive streak in
market history, which is the quarter that includes the midterm election and the next
two quarters after it. Each of them in history being positive 87%
of the time. Three in a row, 87, 87, 87. The notion of that being purely random is
very, very low. Then that parallels, of course, with the overlapping
feature, which is the third year of president’s terms in American stock market history have
been overwhelmingly positive, where we haven’t had a negative third year of a president’s
term since 1939, and it really derives from that same feature, falling political risk
aversion. Clients ask, I find that they ask so frequently,
why is it that we think gridlock is such a good thing? Ken refers to it as political risk aversion
abating, but what does that really mean? There’s different ways of looking at it, but
I look at it like this. The stock market wants to look as far into
the future as it can, and discount that. What politics is, effectively, is creating
the rules of the game. When you have a situation where the rules
of the game aren’t changing, it allows investors to at least have the belief, they may not
really know, but they’ll have the belief that they can see further out than they could before
because the ground underneath them is not shifting. That’s why we tend to say political changes
of all kinds, we’re agnostic to. We don’t take one side or another because
it’s the change itself that alters the course of the future. That makes things less unclear. You can’t see into the future as far, at least
believe you can. In the absence of change, people can have
more confidence because they believe they can see further out. That’s a bullish thing. That’s why we think gridlock is such a good
thing for the market. For views on current events in the world of
investing, visit Updated daily, it offers on-demand access
to Fisher Investments’ most current thoughts on capital markets and the global economy,
as well as our sometimes irreverent commentary. We hope you’ll enjoy it.

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