Ken Fisher Sees Stocks, Corporates Up in Post-Election Rally: Exclusive Interview

America's 'predictable election cycle' is a driver of returns, on average up '17.5 % in the 12-months after' midterm elections

What is it about the election that makes Ken Fisher so optimistic about the future for equities?

In part, it’s the election cycle. The current election reminds Fisher (left) of one two decades ago: “This cycle is almost identical to the 1991-1992” election—we had “the Greek bankruptcy, double dip recession, the banking crisis. Ross Perot” was a presidential candidate, and “it was in Bill Clinton’s interest to talk down the economy—and George Herbert Walker Bush,” was saying, “stay the course.

This time it’s the Republicans’ interest to talk down the Democrats,” about the economy. Now, with the midterm elections over, and Republicans taking over the House, “it’s no longer in the Republicans’ interest to talk down the economy.”

After Midterm Elections, Risk Aversion Abates

Fischer, who manages more than $37 billion for north of 20,000 investors and more than 100 institutions from his headquarters in Woodside, Calif., notes that investment advisors tend to be “more Republican, more conservative.” When “politicians agree with you,” he says, it’s possible that you “don’t realize that they may not mean” what they say, Fisher explains. Since investment advisors tend to be “more Republican; more conservative,” Fisher contends that they “tend to be blind to that when politicians are saying something they agree with.”

Because in this cycle the “investor class” has been “so risk averse, and concerned about a double-dip recession, the PIGgieS and Obama,” Fisher expects the reversal “effect to be stronger than normal.”  

Uniquely American: We Know When Our Elections Will Be

“In my view—which may be wrong—the driving feature is amplified this year,” Fisher argues. And what does he see as the driving feature? “It’s fundamental to American politics: the predictable timing of the election cycle we have here. We know when the election is. The president knows his party loses power relative to the opposing party,” after mid-term elections, “so they get onerous legislation done in the first two years.” In President  Barack Obama’s “case, it was spending, health care and financial reforms.” After the first two years of a president’s term, the mid-term election, it’s harder to get controversial legislation through—the opposition is too strong; “they’ll never get it through after that.”

We’d “have to go back to World War II to find a negative six-months after a mid-term election,” says Fisher. He adds: it’s “normal to see a good stock market after the mid term—up 3% in the first two months—to the end of the year; average up 12% in the first six months; and average 17.5% in the12 months after.” The thing is, he says, “no one ever gets the average—it’s something else.”

In the “first two years of a presidential term, culminating in summer of the second year, political risk aversion rises; total risk aversion rises,” but by “September of the third year political risk aversion falls,’ he notes

What About Bonds—QE2?

What about bonds in light of the just announced QE2, or second round of quantitative easing? The Fed’s purchase of $600 billion in Treasury securities announced Wednesday by the Federal Reserve may have “less impact than people expect, says Fisher. The U.S. is, “23% of global GDP; [the rest of the globe], 77% of global GDP, wants to use our QE2 to provide liquidity.”

In terms of corporate bonds, Fisher says, they “tend to move more with stocks.” Outside of the “extremes, junk bonds tend to move with equities—less so with investment grade.”

(Fisher’s written a new book, with Lara Hoffmans, “Debunkery: Learn It, Do It, and Profit From It—Seeing Through Wall Street's Money-Killing Myths” (John Wiley & Sons, 2010).)

Read more AdvisorOne.com articles about Ken Fischer:

My Fragile, Free-Market Fix

Ken Fisher Calls ‘New Normal’ Concept ‘Idiotic’

Outside the Box With Ken Fisher

30 for 30 Interviews: Ken Fisher

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