The US presidential election is in full swing, with the market filled with various political views and forecasts.

However, amidst the hustle and bustle, it is difficult to distinguish truth from fiction. How can one discern investment opportunities from the political 'noise'? Institutional investors and Hall of Fame member Richard Bernstein believe that the impact of presidential elections on the market may not be as significant as commonly thought, and industry returns may sometimes be completely opposite to pre-election expectations.

On the 4th, he wrote in the British Financial Times that fundamental factors such as earnings and valuations are more important than policy slogans. Political fears about budget deficits and debt levels during elections are often noise, obscuring true investment insights.

Bernstein is the former Chief Quantitative Strategy Strategist at Merrill Lynch, and the founder and CEO of Richard Bernstein Advisors.

Regardless of who wins the White House, the overall performance of US stocks is generally good.

Bernstein believes that the ability to interpret real investment information from noise is always the key to investment success. However, in today's highly polarized US presidential election, investors face challenges in filtering out important information from the exaggerated chorus, which seems more difficult than ever before.

He noted that historically, the impact of presidents on financial market returns has been relatively small. However, due to the current election attracting excessive market attention, today's investors need to stay calm especially:

The market's short-term reaction to elections may vary, but in the long run, the returns of stocks, asset classes, and industries are not affected by the president's term.

Bernstein points out that regardless of who takes office in the White House, the overall performance of the US stock market is generally good. For example, since Jimmy Carter became president, the S&P 500 index has achieved double-digit annualized total returns in each presidential term. Except for negative annualized returns during George W. Bush's term.

During the presidencies of Obama and Trump, the annualized return of the S&P 500 index also reached 16.3%, despite their starkly different policies.

Bernstein also believes that the president's impact on industries is not as significant as commonly thought, and industry returns sometimes completely contradict pre-election expectations. Election slogans have little to no relation to subsequent asset class returns.

For example, Trump disparaged the technology industry during his 2016 campaign and pushed for expanding US energy production. However, in reality, during his term, technology was the best-performing industry while energy was the worst-performing.

After Biden took office, he emphasized clean energy and other environmental, social, and governance priorities. However, the energy industry, dominated by traditional producers, has been the best-performing industry during his term so far.

Asset returns are unrelated to election slogans.

Bernstein points out that factors like earnings and valuations are more important than policies. For example, during Clinton's term, US small-cap stocks outperformed emerging markets, despite his adoption of a globalist policy; during Trump's term, US multinational companies and emerging markets outperformed US small-cap stocks, even though he emphasized protectionism.

"The fact is that fundamentals such as earnings and valuations are more important than NAFTA or MAGA."

In addition, Bernstein believes that political fears about budget deficits and debt levels during elections are often election noise that masks true investment insights.

Despite accusations that both the Democratic and Republican parties have not shown a history of fiscal conservatism, Bernstein believes that the burden of debt interest payments in the United States has been relatively heavy over the past few decades:

"The proportion of interest payments to GDP is rising, but it has been higher in the 17 years of the Reagan, Bush, and Clinton eras."

There are concerns that the United States may eliminate debt by triggering inflation. However, Bernstein points out that this prediction overlooks a fact: the United States has actually reduced the burden of debt through inflation during the administrations of Lyndon B. Johnson, Richard Nixon, and Jimmy Carter.

Bernstein believes that deglobalization and the reindustrialization of the US economy may be an investment theme that transcends politics, as both parties recognize that America's dependency on other parts of the world for most goods production has become a national security risk.

"Regardless of who wins the election, domestic small and medium industrial stocks seem very attractive."

Finally, he points out that investors should make investment decisions based on time-tested fundamentals, maintaining calm and focus. Political noise during the elections may hardly yield any significant market information.

Editor/rice