CFRA Chief Investment Strategist Sam Stovall joins The Final Round to break down his thoughts on the upcoming election’s impact on the market and why the market needs stimulus.
JEN ROGERS: Let's bring in Sam Stovall, CFRA chief investment strategist. Sam, here we are. We've got just about 10 minutes left in the trading session.
The market right now seems just so focused on what's going to happen with the stimulus. Is that the right way to be thinking about stimulus? Does this market really need it? Does the economy really need it right now?
SAM STOVALL: Well, I think the economy needs it. I think the market wants it. Unfortunately, I don't think it's going to get it until after the election. Why would the Democrats want to hand on a silver platter a bragging point for the Republicans?
So I think that they're going to continue to be jockeying for position and engaging in their own verbal tug of war until after the election date.
JEN ROGERS: So when you look at the election and you're looking at the market right now, I know that you love to look at history and other examples. And we keep saying we're at an unprecedented time.
So is there anything that you can look at right now that is giving you guidance and a better understanding of what you think is going to actually happen with the election vis a vis what we've been seeing with the market?
SAM STOVALL: Yes. Since July 31st, the market is up more than 5%. And since World War II, if the market was up in that three-month period, then the incumbent was re-elected 82% of the time. If the market was down, then the incumbent was replaced 88% of the time.
What makes it interesting this time around is that we have a disrupter that is COVID. We've had prior instructors in 1956 with the Suez Crisis, 1968 with the Vietnam War, and 1980 with the Iran hostage crisis.
So even though the predictor is saying that we might end up with a Trump reelection, there could be a disruptor because of COVID and that the upward movement in the market is not because we will not be changing horses in midstream, but rather, the market is encouraged by the recovery of the global economy.
JEN ROGERS: And in fact, I guess, I mean, as you know, just up 5%, I mean, we all know 5% can happen in days sometimes. So that indicator could change as well in there.
What do you think about this talk of the blue wave? Is the market getting too excited about that potential of the Democrats coming in and being able to work together, either on infrastructure or stimulus, that that would really move us higher here?
SAM STOVALL: Well, the interesting thing is, again, since World War II, a blue wave has not been a bad thing for the market. Actually, in those calendar years in which we had that, meaning a Democratic president and both Houses of Congress being controlled by the Democrats, the market was up 77% of those calendar years, which is the highest batting average of all political scenarios.
We've had six times exactly since World War II, in which we had that trifecta. And the market was up about 10.5%. We did see a decline in November because of the shock of the sweep. But then December was positive because of favorable seasonal indicators. And then, as I mentioned, the calendar year ahead, investors just felt that the Democrats were willing to spend and therefore stimulate the economy.
JEN ROGERS: And is the worst thing for the market a contested election?
SAM STOVALL: It used to be. Well, I mean, a contested election, it used to be a split. Congress was the worst. But yes, we had an 8% decline in 2000 in the period between the election and when George Bush '43 was finally tapped as the president.
So uncertainty is the primary worry for the market. But once a victor has been established, whether it's a Democrat or a Republican, the market starts to figure out how do we make money off of this.