Generally speaking, those investing in the stock market don’t like change. Stability and certainty provide the ideal economic backdrop for long-term gains.
Changes of government can create market volatility, as new policies and laws will create winners and losers.
49% of people will vote in 2024
According to Time magazine, the electorates of 64 countries are going to the polls in 2024. If that wasn’t enough, there are also European Parliament elections.
With 70% of FTSE 100 revenues earned overseas, shareholders will be keeping a close eye on the results.
Due to its status as an ‘economic superpower’, I expect most interest will be on the US where — it appears — voting can make a big difference to stock market returns.
According to Liberum, the average annual return of the S&P 500 since 1947 has been 10.8% under Democrat presidents, compared to 5.6% for Republicans.
UK general election
Closer to home, Rishi Sunak has said it’s his “working assumption” that there will be an election during the second half of the year.
And campaigning has started already.
If elected, the Labour party plans to create GB Energy, a nationalised energy company. I suspect shareholders in utility providers will be nervous about this.
It’s also hinted that it plans to widen the scope of the current windfall tax on North Sea profits.
Both parties have pledged to build 1.5m new homes during the next Parliament.
But Labour is keener on using the ‘green belt,’ which will help those housebuilders with rural land banks.
We won’t know for sure until we see the manifestos, but some commentators believe the Labour party is more likely to place additional restrictions on gambling and tobacco-related products.
Others believe that the Conservatives will be keen to further de-regulate the financial services industry — including banks — to take advantage of so-called ‘Brexit freedoms’.
However, despite the uncertainty, I think there’s one FTSE 100 stock that will continue to do well, regardless of which party wins the election.
Slow and steady
National Grid (LSE:NG.) is a cautious investor’s dream.
It has a five-year beta value of 0.37.
This means, when the wider stock market rises (or falls) by 10%, it will — on average — go up, or down, by 3.7%.
Compare this to, for example, Ocado, which has a beta of 1.76.
National Grid enjoys a monopoly status and both the Conservatives and Labour have pledged not to change this.
As it doesn’t face any competition in its key markets, its earnings are steady and predictable. In political terms, it’s more of a John Major than a Boris Johnson.
Of course, it’s regulated so it can’t charge what it likes. But as long as it remains within pre-agreed financial parameters — and keeps the lights on — its profits will be reasonably certain.
This means it can pay a generous dividend. Its shares are presently yielding 5.3%, although there’s no guarantee this will be maintained. But encouragingly, it last cut its payout in 2011.
Also, it plans to grow its earnings per share by 6%-8% each year, until 2026.
I accept that others are more likely to grow quicker.
But in these uncertain times, I believe there are many reasons to own a defensive stock like National Grid. Unfortunately, I don’t have any spare cash to take a position.
