To Our Investors and Friends,
As it often does, the S&P 500 finished October lower, down 1.0% for the month. The 10-Year Treasury Note increased 47 bps in the month, to end at 4.28%. The 2-Year Treasury Note rebounded 50 basis points to end the month at 4.16%. Oil remained fairly flat to close at $69, less than one percent higher than where it started the month. For this negative month, large capitalization stocks modestly outperformed small. The Russell 1000 Growth Index fell .3% and the Russell 1000 Value Index dropped 1.1%. Small cap stocks, which had benefitted from falling interest rates, faired poorer with the Russell 2000 Growth Index falling 1.3% and the Russell 2000 Value Index dropping 1.6%.
The stock market’s volatility has frequently been attributed to election jitters that are leading many to hold off on major decisions until there is clarity on what happens next week. Early voting has created a longer stretch of time that likely increases participation and most certainly has enhanced anxiety among the voting public. In fact, according to Arthur C. Brooks, Love Your Enemies, “political scientists are finding that our nation is more polarized than at any time since the Civil War. This is especially true among partisan elites.” As a result, surveys have suggested that a full 80% of Americans fear a decline in the stock market if the other side wins.
The American public is afraid that people who think differently from them will make decisions for them. Considering that Congress will determine how $6.8 trillion is spent, this is a justifiable fear. That is an insane amount of money. It is enough to bring out the very best and worst of us, and it has contributed to the political environment we have today.
We believe the real danger in the election is a sweep on either side, which could make the misappropriation of funds possible, and may put at risk our most important institution – a fair legal system that both Americans and the world depend on to realize their pursuit of happiness. Thomas Jefferson once said, “a difference in politics should never be permitted to enter into social intercourse or to disturb friendships, its charities, or justice.” Any material change to the legal system on which most Americans have built our lives will take away from the desirability of the country as a place to live and grow a business or a family. It is the one thing that could threaten the American dream.
At Kingsland Investments, we recognize that no matter which side wins, if there is no material change to our legal system, any stock market reaction should be fleeting. Companies with great businesses supported by supportive work cultures should continue to lead the market higher. We will look for opportunities that may present themselves as many may sell stocks in the days following the election.
All the best to you,
Arthur K. Weise, CFA