A Look Back and A Look AHEAD

It has been said that to know where you are going, you must know where you’ve been. It is with THAT in mind, I’d like to make a couple quick comments.

On November 2nd, BEFORE THE election, I sent in a note to Etico Partners institutional clients and said the following:

…The die is cast and a BLUE WAVE shall put rates appreciably higher. This is, *IF* you believe everything you read. HOW HIGH? 10s up TO 1.10 and bonds up TO 2.05 to start? 

The 10yr yield is currently 1.09 (and traded as high as 1.19) while the 30yr is approximately 1.85%.

And THEN on New Years Eve, when asked by the folks at MarketWatch, I said

… What did market participants say?

“The possibility of a Democratic Senate was initially considered bond-bearish, but some are now saying it could hurt [risk assets], and drive Treasury prices higher,” said Steve Feiss, managing director of fixed income for Etico Partners, in an interview.

This has clearly been proven inaccurate so far and Treasuries have NOT (YET) provided that portfolio ballast. This can be attributed to some Fedspeak by whom I’ve deemed the Fed’s “B” team who, over recent days, have decided best to talk about tapering OF bond purchases (Fed is currently buying $80billion of US Treasuries / mo) as soon as Q4. 

That was then and this is now.

The honeymoon period since general election as well as that in Georgia for the Senate, has served to keep HOPE (not a strategy) alive and well, if not confirm it.

This has added a great deal TO the selloff in bonds (prices down, yields UP). 

Going forward, I would expect the Fed’s more prominent (and extremely cautious/dovish) members (Brainard, Clarida and Powell) to give guidance that bond buying will NOT change. I’d expect they’ll ALSO manage expectations in as far as how HIGH interest rates can / will go into the future.

Higher rates are GOOD for savers and investors but come with COSTS (higher cost of buying a home as well as mortgage backed securities extension risk).

Higher rates, too, may reduce the attractiveness of stocks. Today, though, as America celebrates a new dawn I wanted to offer a chart illustrating the impact OF United States Presidents on equity market PERFORMANCE via Deutsche Bank:

annualised S&P 500 performance by President (total return)

(CLICK to enlarge image)

A few summary bullet points:

  • In annualised terms, Trump’s presidency has actually seen the second-best S&P 500 performance since the Great Depression, only surpassed by Bill Clinton’s that coincided with the dot com bubble. He drops to third since 1900 however, as Coolidge was President in the ‘roaring 20s’including the bubble levels late in the decade.
  • No Democratic president has presided over a decline in the S&P 500 in total return terms over the period covered. A positive signal when it comes to the Biden presidency?
  • On average, the stock market has performed stronger under Democratic presidents than Republican ones. But was this skill in their economic handling or simply bad luck on timing for the Republicans? For example, the US had a Republican administration when the pandemic hit last year, the period between the peak of the dotcom bubble and the GFC lows (Bush Jr.), when the 1973 oil shock occurred (Nixon), and during the Depression (Hoover).
  • Herbert Hoover is by far the worst on stock market performance, with no one else even close (-28% annualised). He had the misfortune of presiding over the 1929 Wall Street Crash in the first year of his presidency, and then a sustained period of stock market declines amidst the Great Depression.

So at the end of the day, Biden’s ‘success’ as measured by equity market returns might just come down to that old saying how it is better to be lucky than good? Or that other one where timing is everything?

Steven J. Feiss

Managing Director, Fixed Income

Etico Partners, LLC

1795 Rout 9 Clifton Park, NY 12065

Office: (732) 683-9222
Mobile: (914) 450-9668

feiss@bloomberg.net
sfeiss@eticony.com

Meet the Author

Financial markets veteran with more than three decades of experience working with high profile, domestic and international asset managers and trading desks, producing customized and actionable solutions for strategic alpha generation and risk mitigation. Author of a unique daily (6x per week) cross-asset macro market commentary (the BondBeat) to inform and assist INSTITUTIONAL FIXED INCOME investors and trading desks.