Certainly last night was a surprise for many Americans and international observers. Regardless of your political opinions, most people agree that the Market had “basked in” a Clinton victory. As the votes came in, we saw the futures move more and more negative. The question is why, and what does it mean moving forward? Here are our thoughts:
First: The Market hates uncertainty.
The Market is more stable when there are sight lines to economic outcomes, good or bad. When there is a disruption, the Market almost always goes down as a first reaction. Last night was a perfect example of that - The Dow Jones tumbled as much as 800 points in late-night futures trading when it became apparent that Trump was going to win the election.
But, today is a different story. The broad Standard & Poor's 500 stock index, which was down 5% overnight and hit a trading halt designed to limit losses, erased its steep declines and was up 0.6%. The Nasdaq composite gained 0.4%.
Political Strategists and Economist share the following explainations for why what we feared would happen actually didn't happen:
Second: With that said, we should expect Market Volatility for some time to come. Why?
These concerns don’t mean that the Markets will sell off and stay down, or that all of a sudden we will be on the brink of recession.
Rather, it’s likely that the Market will see exaggerated volatility around these variables as they are being decided.
What should you do?
1. Know that the Markets & the World will be Ok. Look back at other disruptive events to provide some contextual reassurance about the resilience and efficiency of our markets.
2. Continue to dollar cost average into the Markets as they move. By continuing to contribute to your 401(K) Plan and other investments on a scheduled basis you will be buying more shares when the prices are lower - its like a half yearly Nordstrom Sale. Remember: Volatility is the best friend of the systematic long term investor.
Is there an Upside? Maybe.
A Trump win with a Republican Congress might help the Economy in certain ways. We might see a more Corporate friendly tax and compliance environment, a friendlier tax code for the upper middle class and some improvement to Obamacare. Further, Economists generally have tamped down forecasts that had called for a possible recession by 2018 based on the assumption that even a Republican Congress will pass only modified versions of Trump’s proposals. And some economists say the Federal Reserve is likely to forgo an anticipated interest rate hike in December and generally keep rates lower for longer, mitigating some of the damage to economic growth and financial markets.
We don't know what the future will hold. But, as always, your best course of action is to Stay the Course and don't panic - We are America and we'll be just fine.
Latest Updates & Information
International Markets continue to be the most favored area of investment for the first quarter of 2018 and looking forward for the next 12 months. The best performing asset class in Q1 was emerging market.Read full story here
Recent allocation changes have yielded good results in 2017. A greater exposure to International Equities turned out to be timely. There is still room for normalizing this allocation if you have not done so yet.Read full story here