“If you were allowed one wish for your child, seriously consider wishing him or her optimism.”
After Kamala’s meltdown on Fox News last week, the odds of a Republican sweep of the White House and Congress rose to 43% on Polymarket, almost doubling over the past month.
A sweep means investors will have to take the election outcome much more seriously. Markets love gridlock, but the odds of Republicans taking both the House and Senate are now the highest since Biden dropped out. Over the past two weeks, the market appears to have become convinced that Trump is going to win. We’re seeing it in bank stocks and in crypto, which is exactly what we predicted here in Insights back in early July.
Our view is that equities could be troubled for several months in the event of a blue sweep, which we don’t see as particularly likely, but it’s also possible that Trump's Wall Street-friendly policies could be more or less offset by the inflation impacts of higher tariffs and trade wars. Either way, the biggest inflationary risk in 2025 is that either the Democrats or the Republicans take it all. The programs of both parties, without any opposition, would be all but guaranteed to widen the deficit even further and to stimulate inflation.
And even with the record-breaking surge in illegal immigration, massive increases in the costs of food, housing and health insurance, violent crime up huge (after the government lied to us and said it wasn’t), the job market for native-born workers decimated (after the government lied to us and said it wasn’t), nauseating record-level national debt, and quite possibly the beginnings of World War III, inflation remains at the top of the list of things to worry about for stocks in 2025.
_________________________________________________
Of course, nobody really needs a list. The fact is that there's no such thing as certainty in the economy, so there’s no way to have more or less of it. There is only complacency or paranoia about how fragile things are, and that state of fragility really never changes.
Investors on either side of the political spectrum who are fretting over the coming election are likely to espouse the benefits of “capital preservation,” but a true capital preservation strategy really isn’t advisable for the vast majority of investors.
Why? Because volatility is your friend. Nixing volatility would mean that you would have missed out on the 63.1% of months-- and the 73.5% of all years from 1925 to 2023-- when US stocks rose.
Treasury bonds offer better-than-cash long-term returns, but they don’t eliminate volatility. We saw this just a couple of years ago when bonds plummeted in stock-like fashion over the course of 2022.
Inflation is terrible for fixed income investors. While the inflation rate soared to well over 9% in 2023, America’s long-term annual average is about 3.5%. Ten and 30-year Treasury bonds currently yield 4% and 4.4%, respectively. So, you could lock up your funds for 10 or 30 years now and maybe outpace inflation by a small amount, but what if inflation continues at its historic average or higher? Savers will be losers.
The good news is that the S&P 500 rose in 82 of 94 rolling 5-year periods from 1925 to 2023. And 84 of 89 10-year periods. Moreover, it has never been negative over any rolling 20-year span, averaging a return of 806%.
The past never guarantees the future, but it does help to set reasonable expectations. During every holding period accounted for on this chart, you could have made a plausible case that the future was dim, that the young generation was lazy or that politicians were screwing everything up, but as long as profits motivate people, stocks will probably deliver significant long-term returns.
Ergo, a well-diversified equity portfolio is very likely to grow over the coming decades-- maybe a lot-- despite some sharp downward moves along the way. In other words, if you consider a realistic investing time horizon, you can expect to achieve big growth while preserving initial capital. …But the pursuit of growth is the bedrock of the strategy.
_________________________________________________
As someone who has worked in financial services for most of my career, it has been amazing to see how widespread investing has become over the years. A record number of Americans are investing today, and that makes sense because there has never been a better time to be an investor.
Over the last twenty years, the financial services industry has experienced a myriad of positive transformations such as increasingly sophisticated platforms and tools, product innovations, and a focus on delivering high-quality research, educational content and advice. Our clients today enjoy more ways to build wealth than previous generations, full stop.
Ronald Reagan on optimism
At The RG Bar Investment Group, we’re happy to be the ones digging through the horses**t that Reagan mentions here on your behalf. If there’s a pony in there, we’re gonna find it.
Click here to invest with Chad.
For disclosure information please visit:
ความคิดเห็น