Markets hate uncertainty – and that may create opportunities.
Last week, investors experienced another bout of election jitters, and the Standard & Poor’s 500 (S&P 500) Index fell for the ninth straight session.
The CBOE Volatility Index (VIX), a.k.a. the fear gauge, which measures the expected volatility of the S&P 500 during the next 30 days, was up more than 40 percent for the week. The shift in the VIX reflected investors’ concerns about stock market performance after the election. Many think the next four weeks will offer a rough ride.
That may prove to be the case; however, all of the election hoopla and hyperbole has obscured some positive news. So far, the third quarter earnings season has been going well. According to FactSet, 85 percent of companies in the S&P 500 Index have reported earnings and the blended earnings growth rate for the Index is 2.7 percent. That means the S&P 500 Index is on track to experience its first quarter of earnings growth after five quarters of falling earnings.
A savvy portfolio manager or investor might wonder whether any of the companies with improving earnings have seen their share values decline because of election volatility and take time to evaluate whether any of those companies have become more attractive investments as a result.
If you’re too worried about the future of America to think about investment opportunities, it may help to remember the President of the United States doesn’t govern alone. An expert cited by Barron’s offered this insight:
“Regardless of who wins the White House…the new president will probably be playing between “the 40-yard lines” of the political gridiron against a Congress with at least one chamber controlled by the opposition. If both houses are held by the opposing party, the action probably could be stymied between “the 47-yard lines” – likely beyond even field-goal range to score any policy points.”
No matter how moving the election rhetoric, the next President may have a hard time getting much done.
WILL THE U.S. PRESIDENTIAL ELECTION MOVE THE STOCK MARKET? Elections often produce market volatility because markets hate uncertainty, and there is nothing certain about the outcome of the U.S. election. Election-induced volatility, however, often is relatively short-lived.
Remember, the downturn that followed the British vote to leave the European Union? Globally, markets lost about $3 trillion in two days following the late June vote. By the Fourth of July, many markets had recovered lost ground and made new gains, according to Financial Times.
So, what may happen after U.S. elections? Here are some thoughts:
Markets may get bouncy following the election. That doesn’t change your long-term financial goals. If a portfolio review would help settle your election jitters, you may want to contact your financial professional.
* These views are those of Peak Advisor Alliance, and not the presenting Representative or the Representative’s Broker/Dealer, and should not be construed as investment advice.
* This newsletter was prepared by Peak Advisor Alliance. Peak Advisor Alliance is not affiliated with the named broker/dealer.
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