Last Seen in 1880

Joe Biden drops out... A new stage of rare territory... Third rock from the sun... Down the rabbit hole... A 'stolen election' and vice presidents... Stock market history... The case for more inflation...

The stage is re-set...

A few weeks ago, ahead of the first presidential debate, we wrote that "anything could happen" that night. Well, it did. And now here we are, 25 days later, and sitting 81-year-old President Joe Biden has decided not to seek another four-year term.

Facing pressure from Father Time and his own Democratic party to bow out – and after an assassination attempt on his opponent, Republican Donald Trump, has appeared to bolster Trump's popularity – the 2024 presidential election is now in a new stage of rare territory...

We'll get to what this development may or may not suggest for the stock market ahead in a moment. But to get there, I (Corey McLaughlin) will share some context about presidential history...

It's been a while...

You've probably already heard that Biden is the first sitting president since 1968 to withdraw from a presidential race. So, the decision isn't unprecedented on its own, though it's uncommon. But that historical note doesn't do things justice...

You see, today's specific circumstances are rarer yet and haven't been seen in about 145 years... though as we'll explain, they also might have more in common with the previous instance than you might realize.

Each of the past three presidents who'd decided not to seek a second term (Lyndon Johnson in 1968, Harry Truman in 1952, and Calvin Coolidge in 1928) had first been vice presidents who first took over after the president died or was assassinated.

They'd all served more than four years as president already. They also weren't 81 years old, but 61 on average between the three.

Biden was also a vice president, of course, before being president, but not in consecutive terms... and now his vice president, Kamala Harris, is some Democrats' favorite candidate to replace him. Trump, the other leading candidate, is also a former president, not an unknown commodity. We're breaking new ground here in some ways.

But wipe that from the discussion for now and go here... We can say this much in July, several months before this year's election: A different person will handle the Oval Office phone next year than the one who is today, and it has been a while since we could predict a change with certainty in these circumstances.

The last sitting president to not seek a second term and to have served less than four years at the time of the decision was Rutherford B. Hayes ahead of the election back in... 1880.

Strikingly, the comparison doesn't end there...

Get this...

Hayes, then 58, spent much of his term facing allegations from Democrats about winning a "stolen election" in 1876 over Samuel Tilden after the electoral votes of several Southern states and Oregon were disputed.

There is nothing new under the sun...

After four states submitted two sets of conflicting electoral votes, Congress convened an "Electoral Commission" that decided the 1876 race for Hayes, 8-7 along party lines. Even before he was declared the winner, Hayes said he wouldn't seek reelection in 1880.

Two other 19th-century presidents, James Polk and James Buchanan, decided against running again, too, though the history isn't reassuring. The three instances of presidents not seeking a second term in the 1800s sandwiched the U.S. Civil War (during which the New York Stock Exchange temporarily closed given the national uncertainties).

Franklin Pierce was the last incumbent president not to get his party's nomination for a second term, in 1856, losing at that year's Democratic convention.

It has been a while since Earth has seen this kind of thing...

On the other hand, we're here and the dinosaurs aren't, and the stock exchange is open today. Investors carried on. On this Monday, the tech-heavy Nasdaq Composite Index and small-cap Russell 2000 Index were up more than 1.5%, and the benchmark S&P 500 Index was roughly 1% higher, the day after Biden announced his decision.

What history can tell us about the markets...

Market performance from decades ago, much less from the 19th century, has its flaws. It cannot perfectly inform investment decisions today... But from even decades before computers, we have data – and the context is relevant.

Significant issues roundabout 1880 included the soundness of the U.S. dollar coming out of the Civil War, the idea of the gold standard, and inflation. Another was tariff policy. Sound familiar? These were the subjects of immense debate...

James A. Garfield won the Republican nomination to replace Hayes. The Democrats chose Winfield Scott Hancock. They were "hard money" candidates who wanted to return the country to a sound, gold-backed currency that went awry during currency-printing sprees in the Civil War.

Meanwhile, a Civil War general named James B. Weaver was nominated by the upstart left-wing Greenback Party. He favored "unbacked" currency as an antidote to post-war deflation afflicting farmers and a way of breaking the banks' and industrialists' power.

As Election Day neared, in the months ahead of the 1880 election, the U.S. benchmark for stocks did quite well, rising about 8% in the three months ahead of Election Day (about the timeline we're on now). The problems came after...

Garfield won the 1880 election with one of the highest voter turnouts in the nation's history. Then he was assassinated during his first year in office (by a disgruntled campaign supporter who wanted a job). Stocks rose in just three of the next 11 months after that.

More recently, in the cases of the leadups to the "unincumbered" elections not involving a sitting president in 1928, 1952, and 1968, the U.S. benchmark for stocks was higher in the three months prior, up 15%, 2.5%, and 8.4%, respectively. It's human nature. Hope for a brighter future.

Everyone loves change, right?...

But, like after 1880, problems followed Election Day after the nation picked a new president. It seems politicians have always struggled to fix things... and you'd be better off protecting your health and wealth your way no matter who is in the White House.

Recessions – real "official" recessions – each occurred within a year of the '28, '52, and '68 elections.

First came the market panic of 1929 and the start of the Great Depression under Herbert Hoover.

A Truman speechwriter described the 1953 recession as "relatively brief and mild."

The catalyst was tighter monetary policy from the Federal Reserve ahead of expected inflation related to the post-Korean War era. U.S. stocks were down about 12% in an associated market fall into the middle of 1953.

The last of these recessions, which also coincided with high inflation and tighter monetary policy, lingered for nearly a year. This time, stocks took a more considerable hit of nearly 40% from their pre-recession peak in late 1968 to a bottom in June 1970.

I can't tell you precisely what will happen in the markets or politics over the next year or few. In the short term, the prospect of some kind of "resolution" to the election – no matter what it is – could act as a tailwind for stocks, as it has in the past.

Today's betting odds favor a Trump win in November, just like last week, though the gap to Harris is narrower than it was to Biden.

We don't suspect that owning shares of high-quality businesses will go out of fashion to protect and grow your wealth. Nor will "hard assets" like gold, just like back in 1880. (Maybe that will include bitcoin today, too.)

However, I also didn't think I'd be writing with such relevance about the Civil War and Depression eras when I started going down the rabbit hole of "lame duck" presidential-election history.

I think that reflects the volatile times we live in today, too... Circumstantial evidence also suggests preparing for more inflation, too, should even more government spending be considered the solution to deep-rooted, potentially unsolvable problems.

Be prepared for the unexpected, if you weren't already.

New 52-week highs (as of 7/19/24): Alpha Architect 1-3 Month Box Fund (BOXX), Enterprise Products Partners (EPD), Intuitive Surgical (ISRG), Kinder Morgan (KMI), Coca-Cola (KO), Altria (MO), Pembina Pipeline (PBA), Rithm Capital (RITM), and Viper Energy (VNOM).

In today's mailbag, feedback on Dan Ferris' Friday essay... Do you have a comment or question? As always, e-mail us at feedback@stansberryresearch.com.

"I love Dan's essays. He mentioned that he'll never retire, and that someday they may discover his skeleton slumped over a half-written essay. If so, please publish the half essay. I'm sorry if that seems insensitive, Dan..." – Subscriber Darrell W.

"Sometimes you get more out of investment letters than simply stock and market insight and information. In reading Dan Ferris' report there was a golden nugget that my wife and I live by (we are both 75, retired from our regular jobs as biological research scientist (me) and medical doctor profession (wife)). When Dan was asked about retirement, the neuron fired [about how] we found our own philosophy and lifestyle. We both do not understand retirement, having to tell our friends of all ages, that we never learned how to retire. I wish more people would take this approach to life..." – Subscriber Walker F.

"I always look forward to reading what Dan has to say, and his writings inevitably get at least one out loud chuckle from me. I nominate him to be the guy 'most likely to be a blast to have a beer with'." – Subscriber Kathy D.

All the best,

Corey McLaughlin
Baltimore, Maryland
July 22, 2024