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Is There Room for Growth in Presidential Election Year Markets?

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President Donald J. Trump waves Sunday, July 7, 2019, as he prepares to board Air Force One at the Morristown Municipal Airport in Morristown, N.J., for his return to Washington, D.C. (Official White House Photo by Shealah Craighead)

Yesterday, I explained the past performance in equities markets during each year of the presidential election cycle. I also noted that the tradition of strong performance during the year before and of the election have broken down somewhat this century.

With that in mind, I’d like you to look at the so-called Buffett Valuation Indicator, known as a tool Warren Buffett uses for getting a feel for market under- or over-valuation.

The tool is simple, it’s the market cap of American stock markets divided by the country’s GDP. The higher the ratio, the more likely markets are overvalued, and vice versa. You can see in my chart below that the ratio is currently quite high compared to its historical levels.

It’s hard to imagine, with markets valued so richly, where growth will come from in the stock market during this year and next, despite being traditionally the best of the presidential election cycle. Here’s another look at the history of election cycle returns:

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E.J. Smith - Your Survival Guy

E.J. Smith is Founder of YourSurvivalGuy.com, Managing Director at Richard C. Young & Co., Ltd., a Managing Editor of Richardcyoung.com, and Editor-in-Chief of Youngresearch.com. His focus at all times is on preparing clients and readers for “Times Like These.” E.J. graduated from Babson College in Wellesley, Massachusetts, with a B.S. in finance and investments. In 1995, E.J. began his investment career at Fidelity Investments in Boston before joining Richard C. Young & Co., Ltd. in 1998. E.J. has trained at Sig Sauer Academy in Epping, NH. His first drum set was a 5-piece Slingerland with Zilldjians. He grew-up worshiping Neil Peart (RIP) of the band Rush, and loves the song Tom Sawyer—the name of his family’s boat, a Grady-White Canyon 306. He grew up in Mattapoisett, MA, an idyllic small town on the water near Cape Cod. He spends time in Newport, RI and Bartlett, NH—both as far away from Wall Street as one could mentally get. The Newport office is on a quiet, tree lined street not far from the harbor and the log cabin in Bartlett, NH, the “Live Free or Die” state, sits on the edge of the White Mountain National Forest. He enjoys spending time in Key West and Paris. Please get in touch with E.J. at ejsmith@yoursurvivalguy.com