Why Elections Shouldn’t Change Your Investing Mindset with David Hathaway – Ep 65

[INTERVIEW]

Matthew Peck: Welcome, everyone, to another edition of SHP Financial’s Retirement Road Map podcast. I’m your host today, Matthew Peck. And I’m here to ask an important question. Does the presidency matter? Does the person that is sitting in the Oval Office in the White House make a big difference when it comes to economics, in the markets, in the S&P 500? Because very often, we get caught up.

The media, obviously, it’s very entertaining and dangerous at times. We saw what happened earlier in July. And so, we all get caught up in the election. It’s natural. We’re a democratic society. We all vote and we all follow it. The media is driving things constantly. It gets eyeballs on the screen. But at the end of the day, how much does it really matter? And where does it matter?

Here to discuss the history of presidential elections as well as answers to these questions, I’m joined by Dave Hathaway. Dave Hathaway has over a decade of experience in the markets and following politics and kind of their impact there. And for over five to now six to seven years, he’s been a senior investment analyst here at SHP Financial.

I’d also say he’s new to the podcast. So, if he’s very, very excited or whatever that may be, just give him a little break, cut him some slack. It’s very intimidating sitting next to me, right? I’m going to say, I mean, it’s tough.

David Hathaway: One of the greatest minds.

Matthew Peck: Without much further ado, Dave, thanks so much for joining us.

David Hathaway: Yeah, glad to be here. Happy to be here.

Matthew Peck: Yeah. So, before we even get into the markets and politics and where they intersect, tell us a little bit about your background. How did you get into investment analyst? Was it something that you always wanted to do?

David Hathaway: Yeah. So, I actually took an elective ECON class in high school and that’s where I got kind of a basic understanding of the markets and kind of how things work and really just kind of fell in love with it. I took finance in college, excelled in a tax class, which I wish I didn’t excel in the tax class because I ended up doing taxes after college. I did that for about four years. And the tax code is complicated. It’s tough.

And the financial planning and the markets would always sort of call into me. So, I found my way to a financial planning firm and just grabbed a hold of it and never let go. Just love being it’s a dynamic field. Markets are always changing. There’s always something new to learn, whether that’s investment products or about a company. It’s a dynamic field. And I love doing it.

Matthew Peck: It is that really kind of like the main thing about how it’s constantly changing. Was that what really drove it? Or is it more of all these macroeconomic forces? Or is it more like, okay, what makes a company stand out? Because there’s definitely always interesting areas of the market that you can really kind of focus on. As they were saying, as you were saying, constantly changing, but I didn’t know if there was one area that really drove the passion.

David Hathaway: The pursuit of knowledge is a big part of it. And that comes across the spectrum, whether it’s products or whether it’s individual companies, just learning about how capital is invested and the returns that can be generated from doing that efficiently is something I’ve always loved.

Matthew Peck: Fantastic. And I’m going to kind of hone on the pursuit of knowledge. And so, with that in mind, I mean, that’s kind of why I wanted to have this podcast. I mean, every four years or every two years, if you consider the midterm elections, all of our clients, and I think the general public gets caught up in the campaign. I mean, and obviously, the presidential is the big one. And they’re certainly on two edges of the spectrum when it comes to politically speaking and on certain issues.

Although on other issues, they’re talking the exact same thing which we’ll get into. But it’s natural, I mean, we’re human beings, we’re irrational. I mean, markets are irrational. And so, we get caught up in campaigns and we get caught up in who is sitting in the Oval Office.

But the goal today is to really talk about where does it matter and where does it not matter and how come it gets overblown. Again, we all know kind of where it gets overblown because of media and foreign policy and whatever. But I wanted to sort of share that knowledge and to dig in. So, where would you like to want to start? Do you want to talk about where it doesn’t matter or where there’s misconceptions on where the president makes all the difference?

David Hathaway: Yeah, well, maybe where it does matter, I think, because there’s actually limited scope as to where presidents do matter, surprisingly. And you wouldn’t think that, like you were saying, with the way the media pushes the constant news cycle and the hype around presidential elections, obviously, they’re important, but as far as what’s going to happen to earnings in two years from now, three years from now, it doesn’t really make a whole lot of difference unless you’re maybe in some specific sectors or areas of the market.

Matthew Peck: Well, even before, just so all of our listeners know, when it comes to earnings, just to kind of make sure everyone knows all the terminology, that’s just specific company earnings, specific company profit. You have revenue, which is, okay, how much money comes in the door, and then earnings, which is another word for profit. But it’s a great point, like, okay, if you have, I don’t know, Campbell’s Soup, how much earnings? Is it going to make a big difference depending on who the president is?

David Hathaway: Right, exactly. Probably not.

Matthew Peck: Yeah, right. Yeah, or whatever, and you sort of take that idea extended on that and the other company.

David Hathaway: Right. How many iPhones get sold in 2027? Or how many shoes Nike sells?

Matthew Peck: Right.

David Hathaway: Very limited impact. The president has very limited impact on those numbers.

Matthew Peck: Well, and just so everyone knows, too, I mean, the whole P/E ratio or price-to-earnings ratio, that’s how they measure how expensive the markets are. And so, E or earnings isn’t very important. But to your point, as I said, who’s sitting in that office, how much are they going to be driving Nike sales? Pretty minimal.

However, there are sectors that it does matter or there are areas that it does matter. So, we’ll talk, let’s focus a little bit now on where they actually can make a difference beyond, obviously, foreign policy. I mean, let me just state that there are other non-economic, extremely important areas that the president matters. So, I don’t want to dismiss their role by no means. They’re the most powerful person in the free world, right?

However, economically speaking is where we kind of talk about, and especially when we talk to the history of the markets, regardless of president, you’ll see what I mean. So, let’s now talk about where, officially, they do matter economically. So, where would be the first place to go there?

David Hathaway: I think energy, overall, is a big hot button issue when it comes to politics and policies, whether that’s traditional oil and gas or the new forms of energy like wind and solar. Very polarizing. If you own a clean energy company or a solar panel company, you might not want to own that if it’s looking like President Trump’s going to get elected.

If you own a traditional exploration company, oil exploration company, you might trim that position, let’s say, if it’s looking like Kamala is going to get elected. But that’s kind of how I see it’s pretty limited to those sectors of the economy. Energy is the key area.

Matthew Peck: And reminder, too, that energy sort of incorporates things like EVs, electric vehicles, because it’s really driven by a lot of the subsidies and sort of like permitting. Like, specifically on the oil side of it, oil exploration, a lot of that’s driven by the Federal Bureau of Land Management in different areas where they say, okay, hey, Federal government says it’s okay to allow this drilling or that drilling or wherever it may be. Is that sort of how it works?

David Hathaway: Yeah. So, I think that’s where there’s more political say definitely with tax credits and permits like you were saying.

Matthew Peck: Yeah. And the other one I’m going to say too, which is a big one, which encompasses the foreign policy nature of the presidential powers, which is tariffs. President Trump has talked anywhere from raising tariffs from 20% up to 60% depending on the certain campaign stop along those lines.

And so, tariff policy, trade policy is another area that the president does have a lot of sway and a lot of control, some of which I’m not going to argue pro or against tariffs because one thing we talk about, we might want to raise tariffs on our side, but the other country can then raise tariffs right on back. So, it ends up being a zero-sum game at times.

David Hathaway: Right, right.

Matthew Peck: So, I think tariffs are obviously an area that the president will have a significant power over. But now, we can start talking about all the areas that it doesn’t really matter. And I do want to mention to everybody because I think what happens is that everyone follows the presidential election, but they forget about the congressional elections and the Senate and the House.

I love to remind all of our clients that it isn’t just the president that’s being elected. There’s a lot of downticket elections that are happening all across America that are going to have a pretty big impact on whether or not any policies can get done in the first place.

David Hathaway: Right, yeah.

Matthew Peck: You know what I mean?

David Hathaway: And that’s part of the reason that we say, it doesn’t matter that much for your stocks or for your portfolio is that it takes a lot of work to get some of these policies actually enacted into law. So, most of it doesn’t happen just because there’s so much division within Congress and in between political parties. We end up with a stalemate for the most part in a lot of years.

Matthew Peck: And I think that, generally speaking, the market has liked that. The market has liked divided government because at one hand, I mean, if you’re a partisan on the left or the right, you don’t like divided government because you’re like, “Oh, I want my policies. I want my team to get all the wins. I want my team, whether it’s red or blue, to get all the wins and to get all the campaign promises enacted.”

Well, in order to have that, the president, whoever sits in that office, then has to have both the Senate and the House to have significant enough majorities to then enact those policies. Now, as I said, the left or the right will say, they’re radically right policies or radically left policies, whatever that may be.

But to repeat, the Congress is the people that have the power of the purse, and Congress, by design, is going to sort of pump the brakes on whoever sits in the presidency one way or the other. And then if you have a divided Congress, if you have a House that’s blue and a Senate that’s red or vice versa, whatever is actually going to be signed by the president is going to be sort of forged in whatever lobbying, compromising, dirty, how the sausage is made type of politics. And then, so whenever again, whatever campaign promise, what actually gets produced isn’t really what’s being on the ticker right now at CNN.

David Hathaway: Right. Yeah, it’s a greatly watered-down version of whatever they proposed.

Matthew Peck: Right. And again, a great example of that, which is coming up is the Trump tax cuts, which are set to sunset after 2025. Okay? And I would say, too, that the debt deficit is very large, I mean it’s huge, put it that way, right? Even before we’re getting into how to deal with it in different policies, but the idea of those tax cuts, okay, are they going to get sort of renewed? Are they going to expire? What’s going to happen?

And then same idea, regardless of who ends up being the president, well, there’s going to need to be a congressional approval of the reenactment or if they just let it sunset, action or inaction by Congress is who is the most important when it comes to whether or not those Trump tax cuts get renewed, right? And you can argue, for better or for worse, because on one hand, okay, again, our debt deficits are huge, they’re getting bigger. Obviously, Social Security and Medicare and defense spending is all adding up to it.

So, it’s like, okay, well, I want to travel. I don’t like new taxes or higher taxes, but we do have this massive deficit, right? But at the same time, okay, lower taxes are better for growth and whatever. Main point is not to, again, argue positive or negative, but just more the idea that who runs Congress is almost just as important or as important, if not more important, than who is running the presidency.

David Hathaway: Yup yup

Matthew Peck: And you actually have a great graph in front of you, too. I mean, walk us through a little bit about how it doesn’t matter, right? So, if you go back in time, whether it’s GDP or any of the numbers that you want to share, Dave, talk us how that regardless of who is in power, what happens to the American economy?

David Hathaway: Yeah. So, I’ve just got a chart here. The first one I’ll kind of talk about is basically, 2009 through July of 2024. If you remember at the beginning in 2009, Barack Obama was just coming into the presidency. We heard a lot of the same rhetoric from the right that we’re hearing today about Kamala as Trump’s a socialist. He’s going to take down the stock market. He’s going to wreck the economy. Well, it turns out none of that happened. We heard the same thing about Trump when he came into office that there was going to be turmoil, calamity.

Matthew Peck: Yeah, too much of a wild man.

David Hathaway: Too much of a wildcard. Everything was fine. We heard it about Biden again. But during that time, from 2009 through the end of July, the market returned an average of 15%. Now, that was coming off of 2008, which was obviously the financial crisis. That was a rough period.

But still, I mean, 15% annualized return is crazy, is really good. Obviously, we can’t say that the past is going to be the future, but at the same time, really impressive returns. And during that time, we heard countless times from the media about how either side was going to wreck the economy and it just didn’t materialize.

And you could say the same thing about real GDP growth. And that’s GDP growth adjusted for inflation. You see our gross domestic product kept marching through. Obviously, there were downturns during COVID, but it bounced right back up. So, in reality, we just keep chugging along as an economy, as a people.

Matthew Peck: Yeah. And about that, too, I mean, think about all that goes into that, right? And I say it a lot during our quarterly market updates, and there’s some amazing charts that we have there during our– which I’ll be doing in, obviously, October coming up. But it’s just more of the thought that all of the things that go into GDP, right?

And GDP, just for all of our listeners, is the gross domestic product, kind of what we produce, what’s the net result of everything that we produce, and how much do we grow the economy, right? And there is so much that goes into that, right? Whether it’s, as I say a lot, whether it’s the 250 million Americans that are making decisions to improve their lives and to get good jobs and to save and to invest and to buy homes and raise a family or whatever, whatever pursuit they might have, but it’s also things like our labor laws and having very dynamic labor force and people can jump from a sort of job from job depending on their skills and their talents.

I know running an affordable housing is difficult, but you can move, right? You can move from, because it was such a large country that you can move from sort of a rust belt or a downtrodden area to hopefully a more up-and-coming area if it’s in your best interest. And I know affordability is issue, is tough, don’t get me wrong, but I’m just showing that there’s all these structural reasons for the overall strength of the American economy, which is then reflected in the stock market that the president, that the person that occupies government, we’re talking sometimes four years, eight years. Do you see what I mean? That’s the other part to putting it in perspective of how long they’re actually sitting in office. It doesn’t exactly allow for a lot. I mean, we’re a big ship, too, so it’s like imagine trying to shift the Titanic or whatever that may be or any ocean liner is going to take time. And sometimes eight years isn’t exactly enough time to get anything done.

David Hathaway: Right. Yeah, that’s true.

Matthew Peck: So, I think, historically speaking, this is the type of thing that plays it out. And I fear that, and so, I’ll ask you, personal level, like, have you come across people that have overreacted personally in your life, where they say, “Okay, Dave, I’m going to pull money out of the market because this person got elected”?

David Hathaway: Yeah. Oh, yeah, it happens. It’s unfortunate and it does happen quite often. People do overreact, and it’s sad to see because sometimes they end up sitting on the sidelines, just sitting in cash for an indefinite amount of time. Could be two years, could be four years because they just don’t trust who’s in the White House. And in reality, like we’re talking about, that impact is sort of minimal.

Matthew Peck: Yeah. And we talk about that, and so, that’s why obviously, the podcast we wanted to have Dave on just to kind of expand upon it. But it’s just very often people will invest like they vote. And I couldn’t think of– I mean, obviously, historically speaking, now, as you said, past performance is no guarantee of future results. But too often, people will invest as they vote. And as you were saying, they’ll sit on the sidelines and they’ll miss a good run up in a nice bull market or whatever that may be, and you can’t make up for that time, for that difference.

There’s another great chart I was mentioning earlier about quarterly markets on the move, but about sort of economic confidence, where if you are a Republican and Democrat’s in office, you’re going to think that the economy is in terrible shape, like, oh, my goodness, it’s getting worse and it’s getting worse every single day. But also vice versa, where if Republican’s in office and you’re a Democrat, suddenly, you think the economy is going to pot and etc. So, if those political feelings that we all have as citizens infuse our investing, infuse our long-term goals of accumulating capital of retiring when we want to retire, of spending when we want to retire, it’s by far, I think, one of the biggest mistakes that people can make.

David Hathaway: Yeah, it’s up there, for sure. Yeah.

Matthew Peck: So, I think, too, that that’s why we sort of wanted to expand a little bit about where the president does matter. And to be clear, he or she matters in so many ways, foreign policy and in other ways and federal disasters and you name it, right? It goes on and on in regards to the areas that the president does have an impact.

But we want to use today to talk about where the impact was economically and where it actually reflects on the market. So, to repeat a couple of areas, number one, Dave, does, whoever in president, impact how many Campbell’s soup cans are bought or Nike shoes are bought?

David Hathaway: I would have to say no.

Matthew Peck: Okay. So, we have that done. Now, like we said, all joking aside, we do know that there’s impact on energy in the sense that, I mean, and that’s the part, too. If you’re an investor with individual stocks, I mean, that’s obviously something to be aware of. But the president will have an impact on energy, but it’s “dirty” oil, coal, that style of energy or clean energy. The Dems and the Republicans will have different opinions there.

And as I mentioned, too, on tariffs, they matter, of course. And are they going to raise tariffs? Are they not going to raise tariffs? But in so many other ways, their power, economically speaking and market-wise, is much more reduced or much less significant than any campaign promise or media outlet is sort of kind of pumping them up. I sometimes joke around, it’s like football. It’s like the quarterback gets all the praise or all the blame, one way or the other. And it’s like, well, how much did the– I mean the quarterback, there’s a big team out there.

David Hathaway: Right. He’s one person on the team.

Matthew Peck: Yeah. And he’s on the field for half the time anyways. Don’t mention the defense, right? So, I mean, it gets, but they’re usually handsome men. And so, yeah, they get all the glory.

David Hathaway: Oh, yeah. All the focus is on them.

Matthew Peck: Right. All the fame and the glory. So, we just want to kind of remind everybody that, no, I mean, the congressional elections matter just as much, if not more, because they’re the ones that control the power of the purse. They’re the ones that are actually going to take whatever campaign promise you might hear and overreact to because there are some wild things that get said.

David Hathaway: Oh, yeah. Every year, every election year, it’s crazy, the rhetoric that goes around.

Matthew Peck: I mean people are saying what to get them elected. That’s their job.

David Hathaway: Yeah, and they’re going to just say and do whatever they can to get elected. I guess our advice would be to sort of filter that out, especially when it comes to the economy, is to try to filter out that rhetoric and don’t fear, I guess, would be kind of my baseline message is avoid that temptation to fear and believe what they say about the economy.

Matthew Peck: Right. It’s a great point. I mean, just to go back to the campaign rhetoric, I just love this past campaign because my understanding, ex-President Trump or whatever, I don’t even know how you pronounce him anymore. But he’s in Vegas, talking about like, we’re not going to tax tips. And then I believe a month later, Vice President Harris was in Las Vegas. We’re not going to tax tips.

So, it’s like, wait a second. Yes, you hear about this rhetoric all being different and, oh, my goodness, they’re actually talking about the same ideas on the campaign promises because, hey, if it gets you elected, they’ll say whatever necessary at that point.

But Dave has a great point just to sort of filter that out because when you look historically speaking, whether a Democrat’s in the office, White House, whether a Republican is in the White House, whether it’s an all Blue or all Democratic Congress or all Red Congress, or most likely, by design, it ends up being a divided Congress, those are the elections that matter more, that don’t get as much play, because if there’s no election in your state, you’re not going to be seeing much of that news. And they’re the ones that combined with local politics, local people who are making these decisions that do impact the economy because everyone at their heart of hearts, obviously, wants everything to do well, to be better, to save, and that’s what’s driving it all. And the numbers, historically speaking, that you shared with us, Dave, played that out.

So, hopefully, this is helpful for everybody to take a deep breath during this election season. And we know that regardless of whoever is the results, life will go on. And over time, the markets, historically speaking, go up into the right. So, thanks again, Dave. Appreciate. Hopefully, it wasn’t too bad on the first day on the podcast.

David Hathaway: No, it was great. Glad to be here. Vote with your hearts, not your pocketbook.

Matthew Peck: All right. Excellent. Thank you so much, Dave. And so, we wish all of our listeners the best. Be well.

[END]