Financial Markets React to Election

by Matt Ahrens

Surprise!  That’s the message the markets received last night as election results were counted.  Practically every national pundit was caught off guard by the presidential election results, and so was the stock market.  As I tuned in to my channel of choice, I kept checking the Dow futures and watched in agony as they continued dropping…down 220 points…down 400 points…down 600 points.

It’s the worst kept secret in investing that the stock market doesn’t like surprises, and certainly the stock market had been baking in a Hillary Clinton victory for some time.  Over the last month the biotechnology sector was down 5.86% as Mrs. Clinton promised tougher regulation and price control of drugs.  Today that sector closed up 7.75%.  Building America’s infrastructure had been mentioned by both candidates, but it was mentioned again in Donald Trump’s victory speech.  Construction materials ended the day up over 10%.  Typically, we would not see this type of volatility after an election because the markets watch the polls like everyone else.  Usually we don’t get election night surprises.

While we as investors often try to guess the direction the market will take based upon election results or trendy buys in the market place, this is another reminder of why we must take emotion out of investing.  We recently went through a review of our investment models with Goldman Sachs and JP Morgan, and while the results from those reviews were very encouraging, we are implementing several suggested changes.  Our goal as investment managers is to give you an appropriate amount of return for the level of risk you’re willing to assume.  We know we can’t control performance, but we can control risk with a disciplined approach.  As we review our portfolios, we look at various metrics that tell us how successful we are in getting performance for each level of risk our clients are willing to assume.

I won’t bore you with technical jargon, but if you’re interested in discussing this further please let me know and I’d be happy to show you the details of how we build your portfolios.  The bottom line is to remember that emotional investing is probably our biggest adversary in achieving our investment goals.  To be honest, I was hoping for a sharp decline today so we could pick up positions that have been on my radar for several months.  As it happens, the market is now pushing toward all-time highs as we approach the close for the day.  We will likely see choppiness in the credit and currency markets at least through the Fed’s looming decision to raise interest rates in December.  Historically these next few months do very well for the stock market, and while some company earnings have disappointed, many are continuing to beat expectations.  If the new administration is successful in bringing offshore cash back to the US for domestic companies, then we may see significant investment in job growth and productivity.

Or we may be in for more surprises.  That’s why we don’t make emotional investment decisions. 

Tony Moeller, CPA

The information listed in this commentary is a compilation of various publicly available sources and is for informational purposes only. It is not a recommendation or solicitation of any investment or strategy. A risk of loss is involved with investments in the stock and bond markets.

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