by Matthew Kuhn, AIF®, CFA

 

Tuesday Night, 10:36 pm PST

Watching the election results I am overcome with a feeling of déjà vu. The Brexit vote was a shock for many of the same reasons as tonight’s results are a shock – the polls predicted a Clinton victory just as a Brexit Stay victory was predicted. This does not say much for polling. (I just heard a commentator admit “We can’t predict anything.”) It may be saying that there are a lot of angry people in the US and in the UK. Whatever the reason, we now need to look and move forward.

Wall Street likes business as usual – it does not like uncertainty. The market sees a Clinton presidency as a continuation of the Obama presidency – low interest rates and slow growth – not exciting, but a known quantity. The market sees a Trump presidency as a wild card.

We can see how the market perceives the candidates in the market returns over the last two weeks and the last three days in particular. On Friday, the Dow closed at 17,888 – it’s ninth down day in a row, on the tail of the FBI report that they were looking at Clinton’s e-mails again – giving Trump momentum and worrying the market. Over the weekend, the FBI cleared Clinton of any wrongdoing. The market saw this as great news and an indication that Hillary would win. The market was up 372 points and closed Monday at 18,260 and was up an additional 72 points on Tuesday.

It is now election night and Trump is on the verge of victory – and the Dow is indicated to open down almost 800 points on Wednesday. What does this mean and what should you do? In the short term it is our opinion that this is an overreaction that we can take advantage of. We will take this opportunity to rebalance portfolios and see what sort of bargains we can find.

We need to remember that the President of the United States must deal with the Congress, and even though it appears that the Congress will remain solidly Republican – it is a Republican party that has not shown a lot of love for Donald Trump. In the longer term it will be the economic fundamentals – interest rates, job growth, inflation, etc. – that will determine the direction of the markets. We will continue to monitor these factors and make adjustments to our portfolios as needed.

Our portfolios are globally diversified specifically for the purpose of managing risk and to be able to withstand short term shocks as we may be seeing now.

 

Wednesday Morning 4:15 am PST

Dow futures are indicating a Dow opening down 300 points – a 500 point improvement from six hours ago.  This improvement may be attributed to Trump’s conciliatory acceptance speech.  Hopefully the vitriol of the election is behind us and we can move forward.

 

Wednesday Morning 6:30 am PST

The Dow and S&P 500 have both opened in positive territory.  It seems like the election effect may already be over, and the market is starting to look at fundamentals again.

 

Wednesday Afternoon 1:30 pm PST

The markets are now closed for the day and the Dow closed up 257 points at 18,590, just shy of an all time record. In just over 13 hours, the market swung from an anticipated loss of 800 points to an actual gain of over 200 points. It appears that investors, along with everyone else, are desperate to put the election behind them and to look forward to the potential of the economy going forward. No one knows how long this honeymoon period will last – but we will be watching diligently.