Divided

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  By Guest Blogger Doug Rowat

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While the lead’s occasionally changed hands, it should come as no surprise that Donald Trump and Joe Biden have been in a statistical dead-heat with voters for months:

US voter intention: a nation divided

Source: The Economist

While this year’s presidential election campaign has been ugly and will probably get uglier, political division in the US is nothing new.

While party ideology has certainly changed over the decades (the Republican party of 150 years ago, for instance, was not the same party that it is today), it’s still been a fairly even split between the number of Republican (19) and Democrat presidents (16) over the course of US history. And in the past 100 years, the split’s been almost perfectly even—9 Republican presidents versus 8 Democrat presidents.

But while US political strife has been the standard decade after decade, the US equity market hasn’t particularly cared.

Despite this year’s back-and-forth lead changes and the uncertainty of what is, thus far, a coin-flip outcome between Trump and Biden, the S&P 500 has advanced strongly. This year, the S&P 500’s up a remarkable 12% and through the first 100 days was up 11%, one of the best starts to the year in the index’s history. Such a strong a start has historically boded extremely well for full-year returns:

S&P 500: a strong start to the year bodes well for the full year – politics be damned

Click to enlarge. Source: JP Morgan, Turner Investments. Percentages are rounded.

And note that throughout all these strong historical starts (and subsequent strong full-years), the US presidential split has been—you guessed it—perfectly even. A healthy market’s a healthy market; it matters little to investors who’s in office.

Incredibly, even with the S&P 500 doing so well in 2024, Americans are also divided about their PERCEPTION of the returns. According to a recent Harris poll, a whopping 49% of Americans believe that the stock market has actually DECLINED y-t-d. 49%! Americans can’t help themselves—they’re in conflict even when the truth is readily verifiable.

Sadly, of course, this division all began with bloodshed. And perhaps nowhere has this been better summarized than in Gwynne Dyer’s recent book on conflict analysis, The Shortest History of War:

The greatest of the mid-century wars was not fought in Europe at all. It was the American Civil War, in which 622,000 American soldiers died—more than in both world wars, Korea, Vietnam, Afghanistan, and Iraq—out of a population only one tenth as big as it is now. Both sides soon resorted to conscription, and the resulting armies were huge. The US Army enlisted almost two million men during the four years of the war, and the Confederates, almost a million, out of a total population of only thirty-one million. And one fifth of those who enlisted died.

Because they paid for it in blood, Americans care deeply about ideology, politics, and particularly, their party affiliation. To the extent that their opposing views continue to tear the country apart.

But the US equity market marches ahead.

Americans might often hate each other, but when there’s a buck to be made, they’ll quite easily set aside their differences.

Doug Rowat, FCSI® is Portfolio Manager with Turner Investments and Senior Investment Advisor, Private Client Group, Raymond James Ltd.

Source: https://www.greaterfool.ca/2024/06/08/divided/