The Democratic electoral victories that resulted in the party’s dominance might give business-minded Republicans and other conservatives cause for worry. Voter turnout was good, the President acknowledged that Republicans received a “thumping,” and Secretary of Defense Rumsfeld resigned. Americans have sent a message that they’re unhappy with the administration and the situation in Iraq.

What’s going to happen with the stock market now that political power has shifted? If history tells us anything, the transfer of power from one party to the other is more likely to be good rather than bad.
“There have been six times since 1945 in which we went from total political unity, meaning the same party in the presidency and both houses of Congress, to either total or partial gridlock yet the market didn’t really seem to care,” according to Sam Stovall, Senior Investment Strategist at Standard & Poor’s.

In five out of six times during November and December in such periods, the S&P 500 Index managed to climb higher. The average gain for the entire six periods was 4.8 percent, a significant average return for those two-month time periods. In the minds of firms and individuals there are other more important issues than which party controls the executive and legislative branches of government. As a practical matter, investors are interested in funding their retirement accounts, Christmas shopping and year-end tax planning. All these issues frequently involve significant capital outlays.

According to Ned Davis Research Inc., the 4.8 percent average return for November-December is only part of the good news. A study of the performance of the Dow Jones Industrial Average during the third year of a president’s term since 1900 shows that the median return was 15.8 percent. Over 80 percent of these “pre-election years” had positive returns. The Standard and Poor’s 500 Index was positive in 79 percent of the “pre-election years” and their median return was a even stronger 16.5 percent.

Can you make your future portfolio allocations based on this historical data? Absolutely not. Markets move in mysterious ways, which seem to be more random than predictable. Diversification across several asset classes, regularly rebalancing back to your original asset allocation, and continuously monitoring the quality of the mutual funds are the positive steps that will actually provide real benefit.

We’ve heard about the end of world since the beginning of time. In our own era we’ve seen the horrific tragedy of September 11, 2001, the Asian Monetary Crisis of 1997, the Gulf War of 1991, the Stock Market Crash of 1987, the Iranian Hostage Crisis of 1979, the OPEC Oil Embargo of 1973 and other shocking events that seemed to spell doom for our nation and its economy. Taking the long view, sticking to our plans, and accepting things while striving to make the world a better place have all paid the very best returns.

As the year winds down, take the time to review your finances. That means your tax profile, your budgeting projections for your medical practice, your household spending patterns, your risk management plan and your portfolio. Don’t be swayed by external events that are far beyond your control. Focus on the things you can modify for the benefit of your family, your staff and your patients.

Probably the biggest political event that will directly affect doctors was the passage of the Pension Protection Act of 2006. It was signed into law in August and the specific regulations will not be issued by the Internal Revenue Service and the Department of Labor until next February. It contains several provisions regarding estate tax exemptions, charitable gifting directly from an IRA for certain taxpayers and major changes regarding your management of your practice’s 401k plan. Study this law for planning opportunities in 2007 and beyond.


Brooks Sackett is the president of Chief Capital Management Inc, a registered investment advisor. You can reach him at brooks@chiefcapital.com.

Posted on December 4, 2006 06:15 AM