Talking Shop: Volume XV
There has been no shortage of prognostications on how the market would perform based on the U.S. Presidential election results. As long-term investors, we did our own analysis evaluating historical economic and market data over the past 100 years to look for insights on election results and market returns.
So what did we find? There was no significant correlation to market performance based on which party was in office. We found that the priorities of political parties change over time and that the lagged effects of policy implementations muddy the waters on drawing correlations to market returns.
The most important learning from our analysis is an unsurprising one: remaining in the market is the most important variable to investment success. Imagine investing $10,000 in the S&P 500 Index starting in 1950, but only staying in the market during Democratic administrations and selling whenever a Republican took office. By following this strategy, your initial $10,000 would have grown to just over $3 million today. In the opposite scenario, investing only during Republican administrations, you would have $1 million today. Conversely, if you were to have left your initial $10,000 in the market under either party it would be worth over $34 million today.
So, we know that you can’t predict market outcomes based upon political outcomes administrations and circumstances are different. Instead, Sandhill looks to capitalize on opportunities that might present themselves under the current environment. For instance, we recently added AECOM (ACM), a leading engineering and design firm for large construction projects, to our Concentrated Equity Alpha (CEA) strategy. AECOM stands to benefit from potential decreased Federal regulations under the Trump administration as well as a shift towards reshoring of U.S. manufacturing.
As the priorities and policies of the new administration become clearer, we will continue to position your portfolios in a way that manages risk while also seeking new opportunities.
Last week, U.S. equity markets minted another trillion-dollar company as one of the holdings in our Large Cap Yield (LCY) strategy, Broadcom (AVGO), reported a stellar quarter and saw its market cap exceed $1 trillion for the first time.
The first billion-dollar company, U.S. Steel, reached that valuation in 1901. In 1955, General Motors became the first company to pass the $10 billion mark, and it only took another 40 years for General Electric to become the first $100 billion company in 1995. 23 years later, Apple became the first company to reach $1 trillion. Broadcom is now the 12th publicly traded company in the world with a market value of over $1 trillion.
There are three things to notice with this data. First and foremost, the U.S. capital markets are an incredible wealth generator. Nine of the twelve trillion-dollar companies are based in the United States. Second, these milestones are coming at an increased frequency which points to the exponential effects of compounding over time. And third, wealth creation has noticeably shifted from the industrial sector (U.S. Steel, General Motors, General Electric) to technology companies (Apple, Broadcom, Microsoft, etc.).
While the market capitalization of most of our equity holdings is well below $1 trillion, we hope to see more join this club over time.
We wish you and your families a safe, healthy, and happy holiday season!
Best Regards,
The Sandhill Research Team
Disclosure: This has been prepared for informational purposes only and does not provide specific investment advice, recommendations, or offers to buy or sell securities. Sandhill Investment Management (“Sandhill”) is a registered investment advisor with the Securities and Exchange Commission. Statements reflect Sandhill’s views as of the commentary date and are subject to change. Past performance is not indicative of future results, and all investments involve risks, including the potential loss of principal. References to specific securities, such as AECOM and Broadcom, are for illustrative purposes only and do not constitute recommendations or guarantees of future performance. Hypothetical scenarios, such as historical S&P 500 performance under different political administrations, are based on past data and are not predictive of future results. Economic and market discussions are based on publicly available information believed to be reliable, but Sandhill does not guarantee its accuracy or completeness. Investors should evaluate risks, including market volatility, geopolitical uncertainty, and company-specific factors, before making any investment decisions. Consult your financial, legal, or tax advisor to ensure any investment strategy aligns with your goals and risk tolerance.