| Special in USA TODAY
Every election cycle, I respond to the same request from my clients: don’t you think stocks will sell if my candidate loses? My answer is always the same: don’t invest your policy.
While most investors handicap the election on a daily basis, savvy investors should focus on long-term economic trends that are expected to continue regardless of which party takes the White House, the kinds of changes that will have a profound impact for years, even decades. .
Here are three trends to consider:
Manufacturing is on the rise
Manufacturing jobs are returning to the United States, which will boost job growth, productivity and business margins. While the loss of jobs in retail, entertainment, and travel is tragic, the total impact on the economy will be less dramatic than in the first decade of this century, when U.S. manufacturing jobs shrank. been exported en masse to China (experts estimate more than 2 million jobs have been lost).
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U.S. capital spending (capex), the money companies invest in factories, technology, and equipment, fell once China joined the World Trade Organization. The correlation is sobering. Once China’s cost advantage started to wear off, companies started spending again. This spending was politically neutral: Capex increased under President Barack Obama’s administration and continued under President Donald Trump. Productivity has increased. The trend has accelerated and is expected to continue.
Technology will continue to drive growth
Companies as diverse as McDonald’s, Honeywell, Ecolab and Walmart, to name a few, are actively digitizing their business models. The trend is accelerating and not slowing down. Work and home shopping, online banking and payment systems, streaming and gaming, 5G, semiconductor automobiles, cloud, data aggregation and cybersecurity will continue to see demand. robust and sustainable growth.
The digital economy represents 9% of the GDP. More importantly, the “new economy” investment spending (software + technological equipment + research and development) exceeded for the first time the “old economy” spending on industrial and transport structures and equipment.
Tech stocks have outperformed for years, leading some experts to compare the stocks of these companies to those that burst in the 1999-2000 tech bubble. Still, high multiples are based on bottoming profits in an easy monetary policy environment. In 1999, the US central bank raised interest rates and the federal funds rate reached 5.5% by the end of 1999. At the height of the bubble, Cisco (CSCO) was trading at a multiple well above 130 times peak profits. Today’s multiples, while above average, are nowhere near bubble valuations and are expected to normalize when earnings growth returns in earnest in 2021.
The September Global Purchasing Managers Indices (PMIs) continued their bullish trend, with 14 of 18 regions strengthening and / or expanding. If we are indeed in the early stages of further expansion, and the monthly figures indicate that we are, a typical economic expansion lasts an average of eight years. Global PMIs are strongly correlated with corporate earnings. Good news for the emerging bull market.
Buckle up. The next few months could be hectic. Elections have consequences, but these long-term trends are ingrained in the economy and will continue to emerge despite political winds.
Nancy Tengler is Director of Investments at Laffer Tengler Investments and author of “The Women’s Guide to Successful Investing”.