The fourth quarter of 2019 had its fair share of political drama. We witnessed a historic impeachment and the start of the 2020 election cycle. What consequences, if any, do politics have on the direction of the stock market and ultimately your portfolio?
History tells us that investors show little regard for a presidential impeachment or resignation. In 1974, President Richard Nixon resigned, and the stock market declined. In 1998, President Bill Clinton was impeached, and the stock market climbed. Stock prices were more affected by macroeconomic events such as the Middle East oil crisis in 1974 and the beginning of the tech bubble in 1998, rather than impeachment.
When it comes to presidential election years, we find that S&P 500 returns were positive in 15 of the last 17 election years, with the exceptions of the 2000 tech bubble and the 2008 global financial crisis. At the end of the day, the executive branch of the U.S. does not control the economy or the stock market.
In the long run, economic fundamentals play the most important role in investment performance. Consumer confidence, inflation, unemployment, and housing issues are some indicators to watch. Currently, they all show that the U.S. economy is strong. For that reason, the current impeachment and the 2020 election cycle does not look like it has had any effect on stock market returns.
2019 was an incredible year for stocks and bonds. The S&P 500 gained 31.49% while the Bloomberg Barclays Capital Aggregate Bond Index gained 8.72%. Foreign stocks also had good results with the MSCI EAFE Index up 22.01% for the year.
December 2019 also brought about changes to retirement legislation through the SECURE Act. Some notable changes:
Eliminates the maximum age for traditional IRA contributions, which was previously capped at 70½ years old.
Raises the age for required minimum distributions from 70½ to 72 years old
Eliminates the lifetime “stretch” IRA option, now requiring non-spouse beneficiaries of IRAs to withdraw all assets of an inherited account within 10 years.
Allows penalty-free withdrawals of up to $5,000 from retirement accounts to help pay for childbirth or adoption expenses
*Past performance is not indicative of future results. Securities are subject to market volatility. This information is based upon sources believed to be true and accurate, but its completeness and accuracy are not guaranteed. Forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties which are difficult to predict.
**All indices are unmanaged and investors cannot actually invest directly into an index. Unlike investments, indices do not incur management fees, charges or expenses. The S&P 500 Index is a broad-based measurement of changes in stock market conditions based on the average performance of 500 widely held common stocks. The MSCI EAFE Index is a float-adjusted market capitalization index designed to measure developed market equity performance, excluding the U.S. and Canada. The Bloomberg Barclays Capital Aggregate Bond Index is an unmanaged market value-weighted index representing securities that are SEC-registered, taxable, and dollar-denominated. It covers the U.S. investment-grade fixed-rate bond market, with index components for a combination of the Barclays Capital government and corporate securities, mortgage-backed pass-through securities, and asset-backed securities. Diversification does not assure a profit or protect against loss in declining markets, and diversification cannot guarantee that any objective or goal will be achieved.