Whatever you do with your mutual fund investments in the next few months, don’t let the U.S. election mess up your plans.
Sure, there’s a lot of heavy artillery on display in the battle for the presidency and control of Congress on Nov. 7: More government, less government, tax cuts, plans to save Social Security and fix the schools.
Right now, stock and bond traders are as jumpy as cats about how the saga of the federal budget surplus is likely to play out. A concerted drive to pay down the national debt just might leave the bond market without its mainstay, U.S. Treasury bonds.
But whatever short-term disruptions arise, a victory by either Democrat Al Gore or Republican George W. Bush isn’t likely to bring any drastic change in the forces that set the long-term course of the markets. No dictators are being chosen here, and some of the campaign commotion you hear is just noise.
“It’s important to bear in mind that platforms and promises rarely become programs,” says Ed Kerschner, chief investment officer at PaineWebber Inc.
When economic policy actions do happen, they seldom conform to election-year expectations. Hark back eight years to when Bill Clinton’s election provoked screams of “Robin Hood!” on Wall Street. Last time I checked, the Nasdaq Composite Index was up 500 percent and the Standard & Poor’s 500 Index up 300 percent since the end of October 1992.
Dare to think that economics influences politics in the modern-day world far more than politics influences economics.
“Many voters have come to regard political activities as less important in the outlook for the economy than was the case in the past,” says Alfred Kugel, senior investment strategist at the fund management firm of Stein Roe & Farnham Inc. in Chicago.
Be sure, for example, that the Internet is going to develop in whatever way it wants to develop, no matter what any policymaker decrees (and no matter who claims to have invented it). All sorts of people and institutions would like to control something this potent and far-reaching, but no single one of them can.
Before we leave the subject of claiming credit, consider that maybe the U.S. government budget was balanced by neither Republicans nor Democrats, but by the much more powerful force of a surging worldwide economy.
If anybody tries a policy move that threatens serious mischief for the economy, count on the markets to react swiftly and emphatically, effectively thwarting it and embarrassing whoever thought up the idea in the first place.
This is the work of the famous “bond market vigilantes” who emerged as a political force in the early 1980s. By selling bonds and driving up interest rates every time inflationary threats appeared, they took a big hand in subduing the scary inflation of that day. Their descendants can be found now in bond, currency and stock markets all over the world.
None of this implies any assurance that all will be well for the markets, here and hereafter. Problems like the budget deficit that seem to fix themselves can unfix themselves just as fast.
To remind yourself that political policy news still bears watching, recall what happened to health care stocks in the early years of Clinton’s presidency, when his administration was studying big changes in the medical system.
The Fidelity Select Health Care Fund, a prominent compendium of those stocks, lost money at an annual rate of 4 percent from the end of 1992 through the first quarter of 1994. But note also that since Clinton Care was abandoned, Fidelity Select Health Care has prospered again, rising at a 28-percent annual rate. In the end, economics trumped politics that time too.
Chet Currier is a columnist for Bloomberg News.
