Fisher Investments Reviews the Impact of the 2024 Presidential Campaign

Transcript

Ken Fisher:

People ask intuitively at a time like early June of a presidential election year— How's the election going? How's the election going to impact markets?

Now, first, let me say, before I worry about this particular election at all, that the history of presidential election years is pretty good.

The history of presidential election years is positive 83% of all US S&P history since the beginning of accurate daily pricing in 1925,with 11-plus percent average annual returns. Moreover, in a presidential election year that was preceded by a presidential second year that was negative, like 2022 was, they've been positive every single time since the bottom of the Great Depression in 1932, with positive years being up about 17%.

So, you'd expect it to be pretty good. Fact of the matter is, back half of the presidents' terms tend to be stronger than the front half; that doesn't mean that'll happen this time.

We've had a pretty good start to the year. Presidential election years historically have tended to start off— and I'm going to go into some nuance here— they started off stronger when we've had a Democratic incumbent president than when we've had a Republican incumbent president. Why?

Well, said simply, most investors—not all—tend to believe that Democrats tend to be more pro-big government, pro-regulatory, pro higher taxes—that
Republicans tend to be more anti-regulatory, more pro-free market and more anti- higher taxes.

Once you take those two, if the Democrats are the incumbent, you've got the possibility that that Democrat loses, and therefore, you switch to what people think will be a more benign environment for business, capitalism, free markets, etc., and they get more excited about it early on. When the Republican is the incumbent, it can go the other way, and the euro, historically, it started off slower.

The fact of the matter is, all these little timing things are about expectations versus subsequent reality. And let me show you that in a different way going off on a tangent. For those same reasons that I cited about how people tend to think about Republicans and Democrats, when we elect a Republican in the election year, it also tends to make for a stronger back half of the year. For the same reasons.

But then you get what I call the perverse inverse, which is, the president's only a president—we're not electing a king. The president still has to put up with that annoying Congress. And then there's all those federal courts. You know, those courts. You know, they can strike down what Congress does.

They can strike down what a president wants to do. And the president doesn't really have all the power that some people that want or like that president hope he would have, or that the people that dislike him fear he will have.

So, when he becomes the president his inaugural year, he can almost always get less done than those who love him hope and those who dislike him fear. And so, when we've elected a Republican, the inaugural year has usually not always been disappointing.

Way more often than not, when we've elected a Democrat, the inaugural year has been more positive because if you go back, with Democrat inaugural year since World War II, there's only been one negative inaugural year, which was in 1977, in Jimmy Carter's first year, and the S&P 500 was down 7.9%.

The fact of the matter is, all the rest are double digit positive. Why? Because the depressing part was when they got elected in the election year, not the inaugural year. And the flip of that is that most Republican inaugural years have been low to negative.

So, none of this has to do with the long term returns or whether Republicans or Democrats are better for the stock market in the long term; it's got to do with the timing of expectations versus subsequent realities. On this election, let me just say this election has, and I say this over and over and over again, and you know this to be true:

We know these two men better than we've known any two major party nominees running against each other since the 19th century. Just bar none. Always, otherwise we have one incumbent and a challenger, or two challengers, and we don't know the challenger nearly as well as we know someone who we have lived with as president. Both of these men are largely disliked by the opposition party, and you know that to be true. And it's hard for us to find anything new about them that really changes our minds.

So the polling, if you look at polling, the polling doesn't really fluctuate very much with these two men. So, therefore it should be a close election.

You take all the stuff that's said about—and I'm not going to say any of this stuff, because whatever I say, somebody thinks it makes me biased toward this one or biased toward that one.

I learned a long time ago I got to eliminate my bias. When I think about markets. I got my own biases, but I got to eliminate them when I think about markets.

The fact is, you've had a ton of negative things and positive things that you can say about both these men, and none of them seem to change polling numbers very much. For polling, I encourage you to look at two sites.

One, of course, is the polling data that you can get on realclearpolitics.com. In the upper right of the home page at realclearpolitics.com, you can see the macro polling numbers, but then if you click on there, you can go down through national, you can go down through a five-way race with subordinate party polling, and you can go down to the key swing states where the race will be determined.

This race will be determined in just basically 6 or 7 states. And you know, those being Nevada, Arizona, Wisconsin, Michigan, Pennsylvania, Georgia. If the Democrats did really well, maybe it could ripple into North Carolina. Probably not.

So, that's really those six states that are the most key. But when we when we think about this, the polling doesn't fluctuate much. It's going to be pretty close.

More likely, the outcome is heavily determined at the end by which side is more effective at getting its voters to go out and vote? If I was making a bet at midyear, I would say that Donald Trump gets elected. Why?

Simply because he's ahead in all the swing states at this point in time. And some of them he's in ahead in fairly, fairly overwhelmingly. I encourage you also to look at a website called 270 to Win.

270 to Win is an amazing website that's new this cycle that you would not be familiar with if you're not kind of into the inside baseball of all this stuff and 270 to win like the number 270 and then win, like one word, “270 to win”.

270, of course, is the number of Electoral College votes you need to win the presidency, and it gives you a breakdown with all the states, how they're leaning. You can, just simply by clicking on the states, change their status from lean heavily Republican, to lean light Republican, to toss up, to lean light Democrat to lean heavy Democrat.

And in doing so, you can actually see how if things changed in this state, that state and the other state, that would change the Electoral College vote. As we start right now, today, if you look at the way things are, President Trump is ahead in Electoral college lead.

He's got basically 235 Electoral College votes locked up, which means that he's got to get another 35 to win the presidency. Numbers game.

So, then, if you look at the swing states, you can go down further in 270 and you can see all the swing states, and you can see there's a place you can click on down off the home page where you can see all of the different matchups within those swing states that led President Biden or President Trump win this election.

And just to make a long story short, to put into perspective for you in a way that I haven't seen anybody say in media, but it's simply true: The two key swing states are Pennsylvania and Georgia.

As we sit today, if Donald Trump wins those two, he's got the presidency. President Biden has to win one of them.
President Trump is further ahead in Georgia than he is in Pennsylvania, so that makes Pennsylvania the logical place for the Biden campaign to focus most heavily.

He's got to win one of those two, or it's really nearly impossible for him to win the presidency—pretty much is impossible for him to win the presidency, because if he can't win Pennsylvania, he'll surely lose one of the several other states where Trump is way ahead; Nevada, maybe. If President Biden could put together Pennsylvania and Michigan, Michigan being the state where currently President Trump is weakest, then President Biden's got a real shot.

But you can play with these makeups at that site, and you can actually see what has to happen for the presidency to end up going to President Trump or President Biden. So, I encourage you to do that.

If you're just on the topic as a very close race, it leans toward President Trump right now. Polling numbers probably don't change much.

You probably get an outcome that is heavily determined by which side, Republican or Democrat, is more successful at getting their voters to turn out in those swing states. What happens in places like California and Texas where I live? They don't really matter, I mean, I don't care who the Democrat would be.

Some people talk about the notion maybe President Biden will step down and let somebody else run in his place because he's weak, etc. I don't think that's very likely at all for a whole series of reasons.

But even if it happened, the outcome in a place like California would be the same. That Democrat would win by 20 to 30%.

In Texas, the Republican would win by 6 to 12%. It just there's these states that are Republican or they're Democrat. It's the six states that I talked about.

And if the Democrats did really well, maybe North Carolina, that are going to determine the presidency, that's where the focus would be; that's where you should focus if you're interested in trying to stay abreast of all this.

And thank you for listening to me, and I hope you found this useful.

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