November 9, 2016. By Richard Greene:
Last night’s election validates our philosophy to avoid putting too much faith in what political “pundits” in the media say. We suggest that this caution be extended to the world of financial pundits as well. The uncertainty created by last night’s events will provide endless opportunities for “talking heads” to pontificate and speculate what a Trump presidency means for the economy and the market. Before the markets even opened this morning, the financial media was editorializing what they deemed the consequences of the election to be:
• “The immediate pronounced downward move across risk assets denotes justifiable uncertainty, as do now diminished expectations that the Federal Reserve will raise rates in December” -Janus Capital Group
• “Three elements of Trump’s plan unnerve markets and business leaders the most: his stance on trade, his vow to crack down on both legal and illegal immigration, and his animosity toward the Federal Reserve.” –Yahoo Finance
• “Tuesday evening’s reversal is the latest sign of markets’ fear of a Trump presidency. During his campaign, he has advocated sharply controlling immigration and raising tariffs on trade, decisions that many economists contend could pressure growth at trading partners such as Mexico and potentially reduce already sluggish global growth.” -Wall Street Journal
The reality is that no one can consistently predict the direction of the market; the closest one may come is to accept the fact that capital markets do not like uncertainty or material changes in direction and as a result, volatility tends to increase in the short term. While unexpected events often cause fairly large swings in the stock market, such as what occurred after the Brexit vote , keep in mind that a large percentage of market participants are traders with short time horizons. Over time however, the market trades on fundamentals, and those of us who are long term investors should not abandon their investment discipline in light of what might or might not happen.
Our portfolio allocations are developed around each client’s individual circumstances and designed to be an all-weather strategy, knowing full well there will be rough patches along the way. While we are naturally monitoring these events closely, we will not be rushing in or out of the market just because we may or may not be in political agreement with the election outcome. We encourage everyone to stay the course.