2016 Presidential Election Update
Financial markets are constantly pricing in their expectations and when those change or there is uncertainty, volatility generally ensues. Over the short-term, investors scramble to readjust and reassess which is displayed in the chart below. The graph, providing some historical perspective, plots the performance of the S&P 500 Index in 15 day increments beginning with the day after the election going back through the previous six. As we can see, there is significant dispersion over short timeframes but that is generally the rule, rather than the exception, for stocks with or without elections.
Source: Morningstar Direct
We would be remiss not to note the ramifications from a longer-term perspective given the change in the political landscape. Over the last four years, Democrats had held onto the Executive Branch while Republicans controlled Congress, effectively providing checks and balances. We do expect more traction with the Republican agenda given that, going into 2017, Republicans will now control both the Executive and Legislative Branch with the majorities in the Senate and House of Representatives, similar to the Democrats in 2009. Also, there are a number of Supreme Court Justices who are pondering retirement so there could be some shifts in the Judicial Branch as well.
Shifting to the markets, while stocks do appear more expensive than they have in the past, corporate earnings are expected to rise over the intermediate term and the job market continues to improve which is generally positive for equities.
At the end of the day, once the dust settles, we want to remind investors not to equate election cycles with business cycles. What’s more, elections are just one of the data points the markets digest among many others including inflation, unemployment and corporate earnings. This leads us to perhaps the most important and relevant point of this commentary. Each individual’s situation is unique and, no matter what the direction of the market may be, assessing one’s own risk tolerance and financial goals is key to developing a comprehensive financial plan which can help investors weather the short-term volatility and maintain a long-term focus.
Tyler Schlumpf, CFA
Carson Institutional Alliance
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This newsletter was written and prepared by CWM, LLC. Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual.
DJIA The Dow Jones Industrial Average is comprised of 30 stocks that are major factors in their industries and widely held by individuals and institutional investors.
S&P 500 INDEX The Standard & Poor’s 500 Index is a capitalization weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.