Hello, YieldAlley readers! In this issue:

• Politics and Your Investment Strategy: A Clear-Eyed Perspective

• U.S. Stocks Rise on Tech Earnings and Jobs Report

• Three things investors should know about income

• And more!

NEWS

Standout Stories

3️⃣ Three things investors should know about income (Vanguard)

🏝️ What I’ve Learned Writing 400 Articles About Retirement (Retirement Manifesto)

📺 Reddit is growing faster than ever (Reddit)

💰 Berkshire Hathaway’s cash fortress tops $300 billion as Buffett sells more stock (CNBC)

🥤 Soda is making a comeback (CNN)

MARKET THOUGHTS

U.S. Stocks Rise on Tech Earnings and Jobs Report, Despite Treasury Yields Hitting Four-Month High

• U.S. stocks finished higher to start November:

  • Tech sector led gains with Amazon up 6% and Intel up 8%.

  • Defensive sectors underperformed.

  • All major indexes finished higher despite rising yields.

• October employment report came in weak, affected by temporary factors:

  • Economy added just 12,000 jobs, lowest since 2020.

  • Manufacturing lost 46,000 jobs, largely due to Boeing strike.

  • Unemployment rate held steady at 4.1%.

  • Wage growth remained at 4% year-over-year.

• Bond market developments:

  • 10-year Treasury yield reached a four-month high.

  • October was the worst month for government bonds in two years.

  • Yield increases driven by strong economic data and inflation concerns.

• Corporate earnings highlights:

  • Amazon reported better-than-expected profitability.

  • Intel provided positive guidance.

  • Apple's revenue guidance disappointed slightly.

• Market sentiment and outlook:

  • VIX volatility index rose to highest level since August.

  • Election uncertainty driving increased market fluctuations.

  • Stocks posted first monthly decline after five months of gains.

  • Recession probabilities have decreased.

• Looking ahead:

  • Markets anticipate Fed rate cuts at remaining 2024 meetings.

  • U.S. presidential election in focus next week.

  • Analysts view potential election-driven pullbacks as opportunities.

  • Oil prices edged higher on Middle East tensions.

INCOME BUILDING

Politics and Your Investment Strategy: A Clear-Eyed Perspective

As we approach the 2024 presidential election, with Vice President Kamala Harris and former President Donald Trump running neck-and-neck in both national polls and key battleground states, we've been analyzing how politics intersects with investment strategy. Many of our readers have asked whether they should adjust their portfolios based on potential election outcomes, particularly given the uncertainty around control of both the House (currently narrowly held by Republicans) and Senate (narrowly controlled by Democrats).

The Reality Check: What 75 Years of Data Tell Us

While elections certainly matter for many aspects of our lives, their impact on broad market performance is far less predictable than conventional wisdom suggests. Looking at hard numbers going back to 1948, the data tells an interesting story. Democratic-won elections saw positive returns in 10 out of 13 cases over the following year, while Republican victories led to positive returns in 5 out of 12 cases. Over four-year periods, Democrats saw positive returns 11 out of 12 times, and Republicans 8 out of 12. These statistics might seem to suggest a pattern, but deeper analysis reveals more complexity.

Using three-month returns following elections and comparing them with average returns throughout the full analysis period, we've found some surprising patterns. Statistical analysis reveals that single-party control of both the White House and Congress doesn't significantly impact market performance. Instead, divided government scenarios show more consistent patterns. When Democrats control the White House and Republicans control Congress, returns have historically exceeded market averages. Similarly, a Democratic White House with a split Congress has produced above-average returns. Even a Republican White House with Democratic Congress has generated positive returns, though slightly below historical averages.

Policy Proposals and Market Reality

The 2024 election presents several major policy considerations. On the tax front, we're facing the expiration of Trump-era tax cuts in 2025. Harris has proposed increasing the capital gains rate from 20% to 28% for top earners, while Trump has suggested reducing the corporate tax rate to 20%, with a potential further reduction to 15% for U.S. manufacturers. Both candidates have indicated support for various tariff policies, particularly regarding China, showing how traditional party lines on free trade have shifted.

The Sector Myth: A Deep Dive

You might think, "Okay, but surely specific sectors are affected by presidential policies?" Current campaign proposals highlight this thinking—from potential changes to corporate tax rates to energy policy differences. But recent history tells a different story.

Conventional wisdom about sector performance under different administrations often proves incorrect. The energy sector provides a compelling example. Contrary to expectations, renewable energy stocks outperformed during Trump's administration, while traditional energy companies showed stronger performance under Biden. In fact, energy stocks achieved a remarkable 136% outperformance during Biden's term, demonstrating how market fundamentals often trump policy predictions.

Economic Fundamentals: The Real Market Drivers

Three factors consistently outweigh political outcomes. First, economic growth patterns show that rising growth combined with falling inflation produces above-average returns, while falling growth paired with rising inflation leads to below-average returns. Second, corporate earnings, particularly third quarter results, have historically shown stronger correlation with market performance than election outcomes. Third, global economic conditions often outweigh domestic policy changes, as evidenced by the energy sector, where global production and consumption patterns (80% of which are outside U.S. control) drive performance.

The Bottom Line: Numbers Over Narratives

The 2024 election presents significant policy choices—from tax reform to international trade policies. However, 75 years of market data suggest that making investment decisions based on expected political outcomes is statistically unsound. Markets have historically responded more to economic fundamentals and corporate earnings than election results.

When evaluating investment strategies, we recommend considering current market valuations relative to historical averages, economic growth trajectories, corporate earnings trends, individual sector fundamentals, and personal risk tolerance and investment timeframes. The data consistently shows that markets generate positive returns under various political configurations, suggesting that investment strategies should be built on fundamental analysis rather than political forecasts.

What's your perspective on these data points? How do you balance political news with investment decisions? We'd love to hear about your experiences managing portfolios through previous election cycles.

INCOME BUILDING

Cash Rates

Government Money Market Funds (7-Day Yields)

• SNVXX (Schwab Government Money Fund - Investor Shares): 4.55%

• SPAXX (Fidelity Government Money Market Fund): 4.47%

• TTTXX (BlackRock Liquidity Funds: Treasury Trust - Institutional Class): 4.64%

• VMFXX (Federal Money Market Fund): 4.75%

Brokered CD Rates (6-Month Rate)

• Charles Schwab: 4.40%

• E*Trade: 4.35%

• Fidelity: 4.40%

• Merrill Edge and Merrill Lynch: —

• Vanguard: 4.40%

ETFs

• SGOV (iShares 0-3 Month Treasury Bond ETF): 4.88%

• BIL (SPDR Bloomberg 1-3 Month T-Bill ETF): 4.63%

• USFR (WisdomTree Floating Rate Treasury Fund): 4.69%

• TFLO (iShares Treasury Floating Rate Bond ETF): 4.69%

BONUSES

Brokerage, Bank and Credit Card Bonuses

Brokerage Bonuses

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  • Use promo code PROMO24.

    • $50+ will receive $100

    • $1,000-$24,999 will receive $150

    • $25,000-$49,999 will receive $150

• tastytrade (still active): Offering up to $5,000 in bonuses. Lower deposit bonuses are attractive, with a $100 bonus for a deposit of $5,000 (2% return). Offer here.

• Robinhood (still active): Offering a 1% bonus for transferring any table brokerage holdings. No maximum, but deposits must be held for two years after account opening. Offer here.

Bank Bonuses

• BMO Harris (active) — Earn up to a $560 bonus when you open a new Smart Advantage or BMO Harris Premier checking account. Offer here.

  • Availability: Nationwide

  • Soft credit inquiry

Credit Card Bonuses

• Chase Ink Preferred (active) — Get 120,000 Ultimate Rewards bonus points when you spend $8,000 in the first three months after account opening. Offer here.

• American Express Hilton Surpass Card (active) — 150,000 points Hilton Honors points after spending $2,000 in 3 months. Get an additional 50,000 points after spending a total of $10,000 within the first 6 months. Offer here.

Picture of the Week