Transcript
Hello everybody, welcome to Tuesday, the S&P 500 was up .7%. Today, I was led by online retail, Clean Energy, Genomics and Innovative Technology, all the things that we have in our portfolio did quite well today. With a few exceptions, obviously, but the majority did quite well, you’ll be pleased to see your results today versus the the market itself. So very pleased with that. I want to answer a question that keeps coming up, which is just, you know, what happens if the Democrats win both of the Senate seats that are being contested today? And so let me show you some data and some informations, some of the history of what’s happened here so that maybe we can have, you know, an intelligent conversation about that.
So lots of conversations about, hey, if the Democrats win, the market is going to drop 10%. Okay, well, let’s let’s take a look at kind of what has happened, historically, at least with the different presidencies and what’s happened in those regards. So this is from Ned Davis Research, it goes back to 1900. It looks at every presidential election, since 1900. And what it’s doing is it’s looking at what happened in the year after. And so this is the Dow. And so this dotted line here is if an incumbent Republican president loses. Well, that’s what happened here. So that’ll be the line we focus on the most. But you know, they’ve showed the other data here anyway, Republican wins, the average Democrat incumbent wins, incumbent Democrat loses. So if we focus on this red line, you can see, first of all, you know that it dropped 7% went from 100 to 93.
That 7%. I know, it’s kind of dramatic, but actually, that’s nothing in terms of the market, we lost 10% in October. So that type of stuff happens all the time. But what is interesting to know that the current situation we have has the highest average rate of return since 1900, made 12% on the Dow when an incumbent Republican loses. Okay, so that’s important to remember, I think that’s a critical piece. And what Ned Davis talked about here was that there’s often a fear of this increased regulation and taxes, and those types of things. And then often times, that fear kind of dissipates, as people see what the reality is, or what’s actually able to be done. And then we’ve seen these big recovery as far as that goes. Let’s talk about the taxes, because this is the key area that they keep bringing up. And Ned Davis also provided this great piece, which just shows the average tax rate by industry. And the blue is the tax rates that they were paying prior to the tax cut that was done in 2017. And the orange is what they’re paying now. And so you can see some industries are going to get hit a lot harder if they increase taxes back to where they were, or even partway with where they were.
So for example, financials, you know, they paid 29, now they’re paying twenty, that’s a big difference, if they have to push that back up, it’s going to be a bigger hit to their bottom line compared to where they were before communication services. This is Facebook, Google, Netflix, those types of things had a huge drop off from that tax cut. And obviously, if they have to push it back up, but most of our money is an Information Technology, not as big of a spread. Energy, Clean Energy, really small spread. Healthcare, especially with our Genomics, again, a small spread. So all that’s by design, definitely want to have things in the portfolio that aren’t going to be as affected by what happens, potentially here with some tax increases to companies. So it kind of depends, I do think that the whole market could come down, because the market includes all of those different pieces. But, we only have a small exposure to the total market, our exposures more targeted right now that we’ve been kind of forced into. And I think Innovative Technology and Clean Energy, and you know, all of these areas that are doing quite well aren’t going to be as effective tax wise, you know, I don’t think the key criteria when you’re looking at a Clean Energy company, for example, is how much tax they’re paying, that might be true for a bank. But when you’ve got a fast growing industry, Genomics and Innovative Technology, taxes are not the key issue, growth is the key issue.
The price of the stock is already factoring in a lot of growth, you gotta deliver that growth. Usually taxes are fairly small, and a lot of these types of companies because they are spending so much money on growth, and they get so much in the way of write offs in that regard. So it’s more of those older established companies that often have these bigger tax issues, because they’re not growing as fast as they used to. there’s not as much money going into that component. And so, you know, I think that there is some fear here. I think it’s probably a buying opportunity, because I think the other part that offsets this if the Democrats win is the fact that they’re going to put out more stimulus. I mean, I Biden said yesterday, “We’ll send you $2,000 checks if we win.” Okay, I don’t know if you agree with that as an idea or not, but it’s still it’s a stimulus, and money coming out like that makes the markets go. It’s why we had such a good year last year. On top of that, we’ve got the Clean Energy package that they’re talking about a $2 trillion package that they want to put out to, you know, revolutionize our grid and what have you. They’re talking about having 500 and some odd thousand charging stations versus the 60 some odd thousand that we have now, for example. And so I think there’ll be some give and take here.
I think that you know, some of these could be offsetting, if the Republicans do win at least one of those seats, I think the market kind of likes that generally likes a split Congress, historically, the best rates of return have come out of split Congresses. So you know, that’s a factor too. I don’t think that the Democrats winning is going to be that big of a deal to the stock market. We are on a tear right now. We just put out a $900 billion stimulus package. Now they’re talking about more. I mean, this is a really good market as a whole. I don’t see this as being the thing that turns it into a 30% downturn or what have you, we could definitely have some volatility. But I think you know, it could go up, because of the potential for the stimulus and the Clean Energy plan and what have you. I also feel like we are well positioned for this particular situation. So let’s see what happens.
I don’t think we’re gonna find out right away. You know, who wins, this stuff seems to take a little while to get all these counts in. Georgia does not allow for counting votes until you know the election day itself. So of course, that’s going to drag things out a little bit. But I look forward to seeing what’s going to happen. We’ll talk to you tomorrow. Thank you very much.