Market Update – November 6, 2016
One of the great things about this weekend is that is it the final weekend of the 2016 Presidential campaign!
If you are anything like us, campaign-fatigue has long since set in.
Until recently, however, the stock & bond markets did not notably reflect the consternation surrounding Tuesday’s election.
That changed last Friday when FBI Director, James Comey, announced that an investigation into Hillary Clinton’s use of a personal e-mail server had been re-opened, causing polls to tighten and investors to seriously contemplate a Trump presidency.
Such contemplation has resulted in a multi-day, multi-percentage pull back in the major stock indices. The S&P 500 has fallen 3.07%, and it is has dropped each day, since last Tuesday.1
The bond market, meanwhile, has been balancing its implicit hedge against the perceived uncertainty of a Trump victory with a pre-emptive posturing for a Fed rate hike before year-end.
With intended starkness in language: the market has been expecting a Clinton victory. As the prospects of that outcome appear less certain, the ambiguity meter of the market begins to tilt upward and volatility ensues.
In the market’s eyes, there is a premium on policy “continuation” (Clinton) versus “alteration” (Trump).
Fear of the unknown (in this case the policies and their economic influences of a Trump administration) elicits protective mechanisms that can prioritize short-term safety over less conservative longer-term ambitions as that premium erodes.
Weeks like last week remind us that markets embed the psychology of their investors and almost nothing is more psychologically destabilizing than uncertainty.
However, one way or another, on Wednesday morning, the outcome of this election will be certain – saving any recounts or hung electorates, that should be the case.
As we mentioned in publishing our last Kavar Canvas on September 2nd, https://kavarcapital.com/the-tightrope-between-washington-and-wall-street/, the valuation of the market at the time a new president is sworn in as far more relevant for the market’s performance than that new president’s party.
And thankfully, after quite a long wait, we have seen a pick-up in the underlying growth metrics of the US economy – notably wage growth and GDP which were released in the last couple weeks.2
In addition, we are on-track to produce the first positive quarter of earnings for the companies in the S&P 500 over the last 6 quarters.3
This progress, slow in its materializing, will not be unwound based upon the outcome of Tuesday night’s election results.
Remember that markets, and industry, are fueled by a tonic of equal parts innovation and productivity. There is a virtuously circular benefit to a good business climate in our country and that climate supports heathy and functional bond and stock markets.
We believe that both candidates agree with that point.
But we must also remember that uncertainty is a constant in investing and thankfully so. Any dislocation caused by uncertainty offers a gateway to future opportunity.
And we think that actively managing accounts around this period of uncertainly is critical to capitalizing on that opportunity.
We will be in touch as this week unfolds and please do not hesitate to reach out as it relates to the implications on your personal portfolios.
Lastly, while there are thousands of internet resources for analytics and probabilities re: Tuesday’s elections, we find these 2 to be particularly balanced and informative:
http://www.paddypower.com/bet/politics/other-politics/us-politics?ev_oc_grp_ids=791149
http://www.realclearpolitics.com/
1 Source: Bloomberg Market Data
2 Source: Bloomberg Market Data
3 https://www.zacks.com/commentary/94902/q3-earnings-season-an-inflection-point
Important Disclosures:
The views expressed herein are those of Douglas Ciocca on November 6, 2016 and are subject to change at any time based on market or other conditions, as are statements of financial market trends, which are based on current market conditions. This information is provided as a service to clients and friends of Kavar Capital Partners, LLC solely for their own use and information. The information provided is for general informational purposes only and should not be considered an individualized recommendation of any particular security, strategy or investment product, and should not be construed as, investment, legal or tax advice. Past performance does not ensure future results. Kavar Capital Partners, LLC makes no warranties with regard to the information or results obtained by its use and disclaims any liability arising out of your use of, or reliance on, the information. The information is subject to change and, although based on information that Kavar Capital Partners, LLC considers reliable, it is not guaranteed as to accuracy or completeness. This information may become outdated and we are not obligated to update any information or opinions contained herein. Articles may not necessarily reflect the investment position or the strategies of our firm.