Policy is a weaker influence on stock prices than we think
Policy can change on a dime. And a policy-driven market can react just as quickly.
The panic last week was triggered by punitive tariffs on allies and other trading partners without time to negotiate – policy mistakes. And then Wednesday, the market showed approval of the policy correction from the White House:
- 10% across-the-board tariffs
- Countries got more time to negotiate–they now have 90 days
- High tariffs on China are OK with investors
Policy mistakes panic investors, and for good reason. However, we still think it is important to do our best to control how much politics influences investment decisions.
For example, it is hard to imagine two administrations more different than the first Trump Presidency and then Biden. But strangely, investors did well under both regimes.
The figures below illustrate how well the market did under both Presidents.*
- Up 84% under Trump
- Up 68% under Biden
Both produced higher than average returns when compared with the long term market results. Both had a bear market (more than a 20% loss) and recovery during their terms. And both supported a tariff on Chinese imports. In his first term, Trump imposed a 20% tariff on Chinese imports, and the Biden administration did not reverse it.
(The light blue bar to the left in the charts shows Dock Street equity returns for the same periods.)
Screenshot
Of course, there were many policy differences between these Presidents. However, if any investor allowed his political beliefs to overly influence his investment decisions, it turned out to be a mistake.
Most, but not all, political news needs to be put in proper perspective. We’re not sure if it should be placed before or after the sports pages.
Best regards,
Daniel A. Ogden
Dock Street Asset Management, Inc. is an investment adviser registered with the U.S. Securities and Exchange Commission. You should not assume that any discussion or information contained in this letter serves as the receipt of, or as a substitute for, personalized investment advice from Dock Street Asset Management, Inc.
It is published solely for informational purposes and is not to be construed as a solicitation nor does it constitute advice, investment or otherwise.
To the extent that a reader has questions regarding the applicability of any specific issue discussed above to their individual situation, they are encouraged to consult with the professional advisor of their choosing.
A copy of our Form ADV Part II regarding our advisory services and fees is available upon request.
Our comments are an expression of opinion. While we believe our statements to be true, they always depend on the reliability of our own credible sources. Past performance is no guarantee of future returns.