What Really Drives Markets


John Micklitsch, CFA CAIA, Chief Investment Officer

Special Counsels, calls for impeachment, global threats, today we face them all. In order to
address our own curiosity and perhaps alleviate yours, we went back and looked at the
performance of the S&P 500 during other periods where these sorts of stories dominated the
daily headlines. Watergate (’73), Iran Contra Special Counsel (’86), Whitewater Special Counsel
(’94), Clinton impeachment (’98), Valerie Plame leak Special Counsel (’03) all provide a rich set
of data points to analyze in the context of the current appointment of a Special Counsel to
investigate Russian interference in the 2016 election. Our initial assessment is that despite
stirring deep emotional reactions, these events have little impact on the direction of the
markets given the prevailing economic conditions of the day.

Some may believe that the Watergate investigation ushered in the miserable performance of
the markets during the 70’s. A closer analysis, however, reveals that it originated from
macroeconomic policies, such as going off the gold standard and the subsequent devaluation of
the dollar, artificially low interest rates, and wage and price controls, rather than from the
Watergate spectacle itself. While the Iran Contra affair came to be just as 24-hour news was
being born and therefore was a TV ratings bonanza, the findings of the Tower Commission were
largely inconclusive and in no way derailed the bull market that started in 1982 on the heels of
the Reagan tax cuts. The contentious period of the 90’s that included both a Special Counsel for
Whitewater and a Presidential impeachment was no match for the Internet revolution, welfare
reform and budget surpluses that drove markets to euphoric highs.

S&P 500 Index, Source: FactSet

The point is that in all of this, whether we are in a bull or bear period, the cause for the
market’s underlying trend is rarely the headline grabbing, politically charged events of the day.
Rather it is prevailing monetary and fiscal policy decisions and their impact on future earnings
and interest rates that largely drive markets. While the temptation is high to read into
emotionally charged news, we caution investors against altering their long-term plans as a
result. The media outlets that promote “breaking news” are far more interested in their bottom
line than yours. The more fruitful exercise during times of headline grabbing political news is to
pick a handful of stocks you know, hold or would expect to hold in a mutual fund or ETF, and
ask yourself what has really changed in terms of their long-term business outlook. More than
likely, you will picture the goods and services they provide as enduring and reach the
conclusion that they are best held for potential future gains. It is when we view the holdings in
our accounts as numbers on a page, detached from real businesses, that the noise can become
distracting and disruptive to one’s long-term wealth. So now that you are armed with some
history, sit back, grab some popcorn and enjoy the political theatre, but remain focused on
economic and business fundamentals, along with your long-term plan, rather than the
emotions the political spectacle creates.

John Micklitsch, CFA, CAIA, is the Chief Investment Officer at Ancora Advisors LLC a SEC Registered Investment Advisor.

The mention of specific securities, types of securities and/or investment strategies in this newsletter should not be considered as an offer to sell or a solicitation to purchase any specific securities or to implement an investment strategy. Please consult with an Ancora Investment Professional on how the purchase or sale of specific securities can be implemented to meet your particular investment objectives, goals, and risk tolerances. Past performance of these types of investments is not indicative of future results and does not guarantee dividends/interest will be paid or paid at the same rate in the future. The data presented has been obtained from sources that are believed to be accurate and credible. Ancora Advisors makes no guarantee to the complete accuracy of this information. The indexes discussed are market performance indices and are not available for purchase. If you were to purchase the securities that make up these indices, your returns would be lower once fees and/or commissions are deducted. Past performance of these indices is not indicative of future results of the securities contained in these indices.

Ancora Advisors LLC is a registered investment adviser with the Securities and Exchange Commission of the United States. A more detailed description of the company, its management, and practices are contained in its “Firm Brochure” Form ADV, Part 2a. A copy of this form may be received by contacting the company at: 6060 Parkland Blvd, Suite 200, Cleveland, Ohio 44124, Phone: 216-825-4000, or by visiting our website www.ancora.net/adv

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