Personal Wealth Management / Politics

Fisher Investments' Founder, Ken Fisher, on How Recent Legislation May Affect Markets

Fisher Investments’ founder, Executive Chairman and Co-Chief Investment Officer Ken Fisher explains the potential market implications of recently passed legislation in Congress, such as the Inflation Reduction Act and the Infrastructure Investment and Jobs Act. According to Ken, most legislation takes a long time to finalize and has low material impact on capital markets. Regardless of the legislation, Ken says markets pre-price the widely discussed information leading up to its finalization, limiting its impact on stocks in either direction.

Ken explains that throughout history, spending and tax legislation changes have shown minimal stock market impact once officially announced. Ken believes the lengthy, widely discussed approval process tends to water down legislation and reduces its ultimate market impact. Stock prices efficiently discount information throughout this extensive process, making market moves less significant once legislation finally takes effect. Ken also points out that government-funded projects are slowly implemented, giving stocks time to adjust. Consequently, the impact of new legislation on stock markets is less immediate and much less significant than most expect.

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Title screen appears, “Fisher Investments' Founder, Ken Fisher, on How Recent Legislation May Affect Markets.”

Text below the title reads "Recorded August 24th 2022"

A man appears on the screen wearing a navy suit, sitting in a backyard with a thick forest behind him.

He begins to speak.

A banner identifies him as Ken Fisher, Executive Chairman and Co-Chief Investment Officer, Fisher Investments.

Ken Fisher does hand gestures from time to time while talking.

Ken Fisher: So sometimes I don't like to talk about politics because people get so heated about it, and there's so much that you can read about almost anything political and it's almost always pro and con and it's almost always down ideological lines that parallel political party lines. And the reality on most all this stuff is somebody thinks it's terrible, somebody else thinks it's wonderful and some of that may be true in the real world in the longer term but as it relates to markets it really doesn't have much impact.

Ken Fisher: And let me explain to you why first, all these things, whatever they are, whether it was the Democrats infrastructure bill sometime back, more recently the so-called Inflation Reduction Act, which is more appropriately called Climate and Health Care Bill, or are debated for a long time, measured, weighed, shrunk, amended, changed, morphed. And most all that is done with people thinking about it, worrying about it, so that stocks pre price it. There's no announcement effect that impacts stocks in any market way ever. And you can measure that going back through a very very long history of stock movements and tax and spending bill changes.

Ken Fisher: Now overall, intuitively, you know, without even thinking about whether any given thing in some government spending bill is good or bad, that the better they are, the better the long-term impact the worse they are, the worse the long-term impact. I'm not saying anything now that sounds anything other than trivial, but the fact is it's also true that often what the bill's about doesn't have anything to do with what the ultimate long-term outcome will be in the real world or otherwise. Why?

Ken Fisher: Because, for example and I'm just going to go back in history a little bit, you may remember, but may not, when in 2010, President Biden and the Democrats had an infrastructure bill that was supposed to be shovel ready infrastructure excuse me, I got that wrong with 2009, mind you. Almost completely there is no shovel ready infrastructure that you can spend money on. Everything today takes a long time and in fact that money, most all of it never got spent if I remember right, which maybe I don't, it was 100-billion-dollar package most of which never got spent in these bills. A lot of the money may not ever get spent because it takes a long time.

Ken Fisher: They're done over the numbers; the headline numbers are done over a ten-year period. So, you go back and revisit the budget regularly after that with Congresses that differ from this Congress, with presidents that are going to certainly over those ten years differ from this president and maybe as soon as in 2025. No way to know that now. And in that a lot of what is planned to be spent never really gets spent. Note that much of the money that was actually allocated originally for COVID relief has still never fully been spent.

Ken Fisher: Now mind you with that, you get other features. Everything takes time. Everything's slow. There's been a lot of headlines in the so called Inflation Reduction Act about the money that's supposed to hire IRS agents. I'm going to tell you they're going to hire IRS agents. But it's important to remember that hiring isn't easy to do. Hiring 87,000 people ever, anywhere is hard to do.

Ken Fisher: The reality of hiring a lot of people is it takes a long time and a lot of those hires don't work out. So, to hire 87,000 people and have them actually get trained, stick, and be with you longer term, you probably have to hire. I'm making this up because it varies a little. You probably have to hire 140,000 people to get to the 87,000. Taking a long time, having a lot of failure. This could take years and years and years.

Ken Fisher: So, whatever it is that you hope or fear out of these bills, I'm just going to tell you in the real world, it's going to be less immediate. It's going to take longer, whether you hope it's good or you fear it's terrible, and whether you're right or whether you're not. And then the stock market's already pre priced most of that regardless, so you don't have to worry about it as it relates to capital markets. Thank you very much for listening to me.

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A series of disclosures appears on the screen “Investing in Securities involves a risk of loss. Past performance is never a guarantee of future returns. Investing in foreign stock markets involves additional risks, such as the risk of currency fluctuations. The foregoing constitutes the general views of Fisher Investments and should not be regarded as personalized investment advice or a reflection of the performance of Fisher Investments or its clients. Nothing herein is intended to be a recommendation or a forecast of market conditions. Rather it is intended to illustrate a point. Current and future markets may differ significantly from those illustrated here. Not all past forecasts were, nor future forecasts may be, as accurate as those predicted herein.”

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