With Nov 8th’s midterm elections right around the corner, investors are anxiously awaiting results across the board.
From October’s inflationary report set to be released this week on Nov 10th to the Fed’s anticipated round of a 50 bps hike in early December down from 75 bps in early November, we must assess the real drivers, headwinds and tailwinds of this current macroeconomic climate to weather any looming storm on the horizon.
Fortunately, with the newly leaked secret on the street, I Savings Bonds drop in yield to 6% from a record 9.2%+, this may actually be a very hopeful sign the government knows something we don’t in terms of where inflation and interest rates are headed. The worst times may be over!
Historically and surprisingly, elections haven’t had much of an impact on the broader stock market’s performance over time. Although short-term volatility is always expected, long term, the market ebbs and flows and thankfully, goes up enough if you wait it out.
Even though the polarization, political donations from the top .001%, and politicization of everything nowadays have ramped up since the 2020 election, causing concern and panic across the nation, for the most part, the stock market is strong enough to prevail and not let any business mogul or factor shift its future-forward sentiment.
As investors, this is a reassuring sign, particularly when considering emotions and tension around politics. Mixing emotions within your portfolio is never a prudent move, not to mention having a big ego or believing you can fight the Fed or outpace the market long-term. Sadly only ~35% of active managers beat passive investors overtime and their respective benchmarks so you are better off mentally and financially investing in longer-term proven defensible strategies of diversified index funds, mutual funds here and there, bulk up on a strong cash cushion to take advantage of higher yields across treasuries to munis these days and of course, tap into alternatives in the private capital market space for extra stability and inflationary proof powers!
These are all great attractive options to take your portfolio to the next level and not be blindsided by what your political opponent stated last night.
Although our worst enemies may be each other as fellow Americans, especially around midterm and election season, what truly brings us together are defensible rich commodities, specifically oil, for better or for worse. Although oil giants such as Chevron and Exxon Mobil in the U.S. have garnered enormous windfalls this past year, they may be paying a price for it very soon once Biden enacts a windfall tax on their obscene quarterly profits. Oil and gas companies will eventually be faced with some scrutiny and regulation, especially since price gouging and profiteering have been top of mind since the Russia-Ukrainian war.
The White House + Oil Production
Although gas isn’t the cleanest option, it still powers our lives and is a staple commodity produced across the globe. It will continue to be inelastic for the foreseeable future. When one considers the results of the election and its impact on the stock market, before jumping to conclusions that markets are swinging a certain way because a candidate is leading the polls, let’s look at the bigger picture and understand how it might swing voters for a certain candidate in the first place.
Recently there have been peculiar studies found between voter sentiment and the price of gas in that it can reveal as much as to who may win the election. Since gas is a staple commodity and good that we could only briefly buy for a few dollars back in the lockdown days of the pandemic, it is now top of mind for American consumers and of course, drivers, once again especially as the packed holiday travel months roll around. Keeping tabs on gas prices has become a daily American ritual and doesn’t just influence the pump — rather the poll as well.
Thankfully gas prices have cooled down since the dog days of summer averaging $5 nationwide in June but are still trickling here and there. Wherever it is poised to head next, this may be a sign of which party wins.
Since gas prices are influenced by the price of crude oil that’s been exacerbated and limited in supply since the invasion of Ukraine in Feb 2022 when Russia threatened to shut off oil supply, this led to massive delays in the U.S. and OPEC production cuts. Today, U.S. oil companies are being watched like a hawk, similar to economists with the Fed, on how they handle supply and demand levels with America’s favorite commodity. The current administration needs to be careful with it too since the direction of prices may have an outsized impact on the election results.
With the release of crude from Strategic Petroleum Reserve and a not-so-successful trip to Saudi Arabia, an oil magnate in itself, one of the White House’s priorities is to help relieve prices at the pump for Americans which starts with implementing a hefty tax to put more dollars back into consumers’ pockets.
The interesting part about the link between voter sentiment and gas prices per the Washington Post is that since the 1970s, approval ratings for presidential candidates flip when gas prices spike. Now, more than ever before in history, that correlation has never been this strong with inflation running at 8.2% in the states.
If the state of the economy and consumer sentiment are tightly correlated with gas price swings, tapping into more eco-friendly options to not rely so heavily on a toxic chemical to sway politics to the budget may be a better option.
The Power of Gas
Although elections may not have a large enough force to swing markets after all, gas prices on our wallets to who gets elected may, which as a result, can impact how the markets react over time, especially if commodities continue to surge.
Gas prices are arguably a staple of American life. Since over 91% of Americans own a car and more than 76% use it to commute to work, gas is a considerable expense, especially since it fluctuates constantly as an unpredictable necessity.
Although inflation has been rampant, consumer sentiment has been pretty steady, hinting at more hopeful signs on the horizon however that all might change if gas prices deviate too far from what most are comfortable with seeing.
Gas prices truly do drive the economy and our lives forward to get from point A to B!
Filling up the pump shouldn’t be as difficult as voting, or vice versa, nor sway decisions that easily but unfortunately it may!
With a gallon of gas currently standing at $3.90 according to AAA, prices are pretty steady however that might change on a dime.