Last Updated: November 09, 2016
Ronald Reagan, Jesse Ventura, Arnold Schwarzenegger, and Al Franken are all former entertainers who made big splashes in their first run for public office. But never has that first run landed someone in the White House! Not since Dwight Eisenhower has a President been elected having never held elective office.While there will be plenty of political and economic analysis in the coming days that tries to deconstruct what just happened, there is some immediate reaction to observe in the investment markets. Not long after the night started to head Donald Trump’s direction, Dow futures (which predict what the Dow Jones Industrial Average will do after the market reopens) traded down more than 800 points. However, when the market did open, stocks had bounced back to flat. But there was some dramatic sector rotation with healthcare and financial stocks up significantly while real estate and utilities lost ground.
The volatility was not confined to the equity markets. Bond prices rose sharply overnight as investors shunned risky assets before reversing and the benchmark 10-year Treasury yield rising to 1.97%. The election results also roiled foreign markets including currency markets. The Mexican Peso was down more than 10% versus the U.S. Dollar. Japan’s Nikkei 225 index was off 5.36% overnight and many emerging country stock markets were down 1-2%. However, European stock markets which were still open when U.S. markets first opened had recovered most of their losses to approach breakeven.
So now what?
We think it is possible that the market reaction will be similar to what followed the Brexit referendum in the UK. First, there will be a volatile reduction in risky assets, followed by a gradual recovery as investors come to realize that Presidents actually have very little ability to impact the economy or the markets. Also similar to Brexit, it will take time for the changes proposed by a Trump administration to be enacted and play out. Even long after this initial response, we may see isolated bouts of volatility as Trump’s policy proposals become clearer.
Historically, regardless of which party/candidate won the presidential election and regardless of whether that made the market go up or down; six months later the market was back to normal. What the market hates more than anything is uncertainty. The election has actually removed some uncertainty, but markets will quickly move on to worrying about the next big thing. Elections are short-term events. We are more concerned with the macro conditions like the Federal Reserve raising interest rates, central banks around the world implementing their QE programs, negative interest rates, and ultimately economic growth.
While the net reaction has been muted, certain sectors and asset classes have moved dramatically. Our investment analysts are closely watching the portfolio positioning of the fund managers used by many of our clients. Managers that were positioned for a Clinton win are having to unwind some holdings and change their investment thesis. Markets can be volatile and we believe that volatility may continue for a while. It is imperative for investors to understand their risk tolerance and review their portfolio to ensure they are diversified appropriately. If you are a long-term investor, who is concerned about your retirement, years or decades down the road, you should not be reacting to the latest headline or event. Our Investment Services team can help identify investments and portfolio allocations that are in line with your retirement plan goals.
To learn more, please contact a Pension Consultants Investment Consultant at 800-234-9584 or email us at email@example.com.
All market data is courtesy of Yahoo! Finance as of 11:03 a.m. on 11/9/16.
PCI’s archived blog entries are dated, the rules and statutes referenced may have changed. The analysis or guidance within these blog entries may have become stale, dated, or no longer accurate. PCI will not update or change these entries to reflect the latest analysis or development.