Investors Should Ignore The Election

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Includes: AAPL, CRM, CSCO, DIA, IWM, JPM, QQQ, SPWR, SPY, T, XOM
by: Dana Blankenhorn

Summary

Polls have shown Donald Trump with a GOP lead since October.

Polls have also consistently predicted a Democratic victory in November.

At times like this it's best to focus on economic fundamentals.

The 2016 election has been remarkable for its consistency.

The "surprise" of Donald Trump being the Republican nominee is only surprising to those who did not believe the polls, which consistently showed him ahead of the field, starting in October.

The same consistency has been true for the general election. Polls show a roughly six point lead for the Democrats, higher for Sanders than for Clinton, but still, a sizable lead. Those polls will fluctuate, slightly, through the November election, but they're about where they will end up.

The biggest tell on what's coming is the President's approval rating, currently 52%. A political party seldom loses the White House when the incumbent has that kind of number. By comparison the approval of George W. Bush at this time in his presidency was around, and would eventually reach a low of 19 near the election. His father, George H.W. Bush, also lost the Presidency in 1992 when his approval rating hit 29 in July.

There is one notable exception to this pattern. Bill Clinton had a positive approval rating throughout the 2000 campaign, but Al Gore lost to Bush, partly because voters saw little difference between them. Do you think that will be the case this year?

Now it is in the political media's self-interest to create uncertainty about outcomes, just as is true in business. But an investment professional, much like a political one, needs to ignore the noise, ignore the spin, and focus on the underlying reality.

The reality is that little change is likely in the political equation. It's possible that Democrats may gain more power by taking the Senate and even the House. It's possible that Trump might win. But those outcomes are outliers, they are unlikely.

Thus the smart move for an investor is to focus on fundamentals, on longer-term trends in the market. Over the next few years, those include a rising oil price, possibly to as high as $80/barrel, rising interest rates (thanks to inflation caused by the higher oil price), growth in renewables (to fight the rising oil price), and a continuation of technology trends toward cloud-based applications tied to devices of all kinds. The economy of the first half of the decade is about to get a second wind.

This is the new normal. The strength of the U.S., the relative strength of its economy, the continued steady growth of China and India, and the turn to renewable fuels are all baked-in. These are investable theses. You can buy Exxon Mobil (NYSE:XOM) here with confidence, but I also think you can buy SunPower (NASDAQ:SPWR). You can buy Salesforce.com (NYSE:CRM) but I also think you can buy Apple (NASDAQ:AAPL). I think the big banks like JP Morgan Chase (NYSE:JPM) will start heading higher soon, as a bottom is found in oil, and I think companies selling bits like AT&T (NYSE:T), especially wireless bits, also make sense. I even think Cisco (NASDAQ:CSCO) may be a good bet, because computer security leaders are becoming more affordable for it. We can argue these things all day, and should.

Just don't make bets based on long shots. Don't assume a boom, and don't assume a disaster. Don't even assume massive changes in the investing environment based on the latest polls. Don't look at the polls at all. If you're tempted to do that, watch the NBA playoffs instead. The favorite is expected to prevail there, too, but unlike the political process, it will be fun to watch.

Disclosure: I am/we are long AAPL.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.