2-Minute Investor Update – November 2016
2-Minute Investor Update
November 9, 2016
Yesterday’s U.S. election surprised much of the nation and the world. And the financial markets. The results have been called the biggest political upset in modern history.
Markets and Uncertainty
Regardless of your political beliefs, or your thoughts on the election, there’s one thing that has been proven time and time again; the markets abhor uncertainty. Even the couple of weeks before the election saw the U.S. stock market fluctuate significantly as the news cycle brought one bombshell after another, overlaid with the media’s near-obsession with each candidate’s “path to victory.” The final results made a mockery of all those polls and the scientific models built to forecast the state-by-state, even county-by-county results.
Shocking news is always enough to rattle the markets. In this case, however, there are several additional elements that may exacerbate the issue. Consider the fact that the President-elect is a complete outsider, unfamiliar with the workings of Washington (which, of course, was one of the catalysts leading to his election), or that detailed policy proposals remain unclear, or that foreign policy and trade policy may significantly change from the status quo. Please note that these are not judgments or meant to tip our own hands with regard to our political leanings; rather, they are merely a few things that may contribute to an edgy stock market.
Another potential contributor to market anxiety is that the White House and both houses of Congress will soon be controlled by the same party. Markets tend to enjoy a bit of a legislative stalemate, notwithstanding the recent rancor in Washington.
So it would not be surprising to see significant swings in stock and bond markets over the near-term. But remember – volatility is not the same as decline. It merely means that stock prices in particular move up and down more than they have. In an environment like this, it appears likely that any bit of economic or other news may cause a larger-than-expected reaction in the markets.
As we write this note Wednesday morning, the U.S. stock market has been all over the place. This after a night during which stock index futures were reported down several percentage points and gyrating wildly, as well as foreign stock markets opening significantly lower. Of course, where the stock market settles today and where it heads in the days and weeks to come is anyone’s guess.
One interesting tidbit; the day after the 2008 election saw the S&P 500 drop by about 5%, followed, of course, by a dramatic bull market that is now one of the longest in history.
What To Do?
All of which brings us to the part where we repeat our long-held beliefs about investing and planning – simply put, our advice for most clients is to stay the course. Elections and presidents have little, if any, direct impact on our economy and the markets, and trying to make a guess (even an educated one) is often a pointless exercise.
A big part of our role in serving clients lies in developing an asset allocation strategy that is designed to meet each client’s unique situation. Even a major shock to the system as we know it will eventually be factored into securities prices and a sense of normalcy will once again prevail. In short, we believe that reacting to these shocks will potentially be a) too late, b) wrong or c) both.
The global and U.S. financial systems and markets have withstood one test after another through the decades, and this one will be no different. One of the amazing things about our electoral system is that as soon as the people have spoken, we have mechanisms in place to ensure the orderly transition of power.
Global markets may experience additional angst as the questions outpace the answers, but over time that anxiety will dissipate, and one thing we can all be certain of is that the sun will still come up tomorrow.
As always, we welcome your feedback and questions.
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