Insights & Advice


Elections and the market


After 18 months of waiting, investors will finally have their chance to vote both with their ballot on November 8th and with their money on November 9th. Given that this presidential contest has been one of the most unpredictable and volatile in modern history, many fear that the market’s response to the outcome will be equally as volatile. What should you do?

The short answer is nothing. Long-time readers know by now that making investment decisions based on emotions are almost always the wrong decision. Selling or buying the markets based on next week’s election outcome would qualify as a highly emotional decision.

You may argue that certain sectors, industries and even companies would most assuredly suffer if one or the other candidate won the White House. Hasn’t Donald Trump already promised trade wars while most economists predicting a global recession as a result? Just this week an open letter to the public signed by 370 economists warned that a Trump presidency would be “dangerous and destructive.”

Hillary Clinton, on the other hand, represents “business as usual,” although she also has singled out certain sectors such as banking and pharmaceuticals as enemies of the state. She also insists she will resurrect Obamacare, a proposition that some believe will cost additional billions of dollars to fix.

If one bothered to go back and research all the threats, reversals and changes the two candidates have promised the electorate over and over again, one might actually believe they have the power to single-handedly do what they have said. But simply saying something repeatedly does not make it so. And let me ask you, have you ever known a politician to make good on their promises once elected? Why do you believe this time will be any different?

The facts are that “read my lips” promises,” when faced with the reality of running a country, quickly face a brick wall called Congress. Neither candidate has the power to do what they promise without the agreement of the House and Senate.

Consider this: Trump has made more enemies in his own party than any presidential candidate in history. These enemies also happen to head most, if not all, of the most powerful committees in Congress. Do you really believe that Trump is going to make any headway within a Congress where the united opposition of Democrats and almost half of the GOP leadership are against him?

By now you know that 80% of Wall Street is betting on a Clinton win. Investors hate change and Clinton promises a return to the status quo. She is the establishment candidate and will do nothing to rock the boat. As long as the house remains Republican with no large majority by either party in the Senate, the paralysis of government will continue for at least another four years. The markets like that prospect.

The risk is that she will win big and if so the Democrats could regain control of the Senate, while strengthening their hand in the House. From an investment point of view, that would not be a desired outcome. Wall Street does not want to see a new wave of liberal tax and spend legislation fueled by the majority of Democrats.

Of course, Hillary could win only to face a host of legal problems brought by the e-mail and Clinton Foundation scandals. Conceivably, the effort to defend herself could distract and hamper any policy moves she might make. Readers might recall “Watergate” during the Nixon Era, as an example of what might lie ahead for a Clinton Presidency.

Given that Donald Trump is perceived as an unknown quantity, global markets fear a Republican win more than they want a Clinton victory. Both candidates’ election therefore could set into motion a period of uncertainty and we all know how markets hate uncertainty.

I believe that the knee jerk reaction to a Trump win would be a short, sharp decline in the markets and then a rebound before the end of the year. If Hillary wins, we would get a relief rally instead, followed by choppiness through December. After that all eyes would be on the Fed’s anticipated interest rate hike in December and how the markets would react to it.

Bottom line: all the angst and drama of the last year and a half will have a very short shelf life once November 8th has passed. Ignore the dire predictions, the rants on social media and the doom and gloom that accompany each and every presidential election in this country. You may be buffaloed into voting one way or the other in the election booth, but don’t make the mistake of confusing politics with your investments. Keep your eye on the ball when it comes to your money and stay invested.




Posted in Portfolio Advice, The Retired Advisor