Market Commentaries

  • Should Investors Worry about Presidential Elections?

      |  

    Market Overview

    table

    Sources: Sources for data in tables: Equity Market and Fixed Income returns are from JP Morgan as of 1/17/2020. Rates and Economic Calendar Data from Bloomberg as of 1/17/2020. International developed markets measured by the MSCI EAFE Index, emerging markets measured by the MSCI EM Index. Sector performance is measured using GICS methodology.

    Happening Now                   

    Global capital markets rewarded investors with another week of impressive returns. In the U.S., the S&P 500 Index pushed above 3300 for the first time and finished at 3330, representing a weekly gain of 1.99%, while the Russell Midcap Index gained 2.29% for the week. Also, the Russell 2000 Index, a measure of the Nation’s smallest publicly traded firms, returned 2.54% last week. On the international equities front, developed markets moved 0.86% higher, while emerging markets gained 1.17%. Finally, the 10 year U.S. Treasury yield was approximately unchanged for the week, closing at 1.84%.

    As we rapidly move closer to a U.S. presidential election in November of this year, many investors are naturally asking what effect the election results might have on their portfolio. Many investors may wonder if they should liquidate their holdings entirely, and subsequently hide in cash until the uncertainty, and any associated perceived risk subsides. Other investors may ponder moving into a slightly more defensive stance, while some other investors may even consider increasing exposure to more risky assets. While the results of this particular election, remembering that not only is the next President of the U.S. on the ballot but all 435 seats in the United States House of Representatives, and 34 of the 100 seats in the United States Senate, will also be contested, may have an impact on the economy, making changes to investment strategies too early may prove harmful to longer-term investment returns.

    Consider the chart below, which depicts the performance of the S&P 500 Index in the weeks leading up to a U.S. presidential election. One can immediately infer from the data in this chart that there is no clear trend, indicating that an election should not necessarily influence investment strategy. In fact, investors who remained invested averaged approximately 7% in the year before a general election, whereas those who made short-term reactionary investment decisions may have experienced returns that ranged from a gain of 25% to a loss of 40%.

    table

    Instead of making short-term reactionary investment decisions that may significantly impact longer-term investment returns, we encourage investors to stay disciplined and work with experienced financial professionals to help manage their portfolios through various market cycles within a well-diversified framework that is consistent with their objectives, time-frame, and tolerance for risk.

    Investing in foreign securities presents certain risks not associated with domestic investments, such as currency fluctuation, political and economic instability, and different accounting standards. This may result in greater share price volatility. These risks are heightened in emerging markets.

    There are special risks associated with an investment in real estate, including credit risk, interest rate fluctuations and the impact of varied economic conditions. Distributions from REIT investments are taxed at the owner’s tax bracket.

    The prices of small company and mid cap stocks are generally more volatile than large company stocks. They often involve higher risks because smaller companies may lack the management expertise, financial resources, product diversification and competitive strengths to endure adverse economic conditions.

    Investing in commodities is not suitable for all investors. Exposure to the commodities markets may subject an investment to greater share price volatility than an investment in traditional equity or debt securities. Investments in commodities may be affected by changes in overall market movements, commodity index volatility, changes in interest rates or factors affecting a particular industry or commodity.

    Products that invest in commodities may employ more complex strategies which may expose investors to additional risks.

    Investing in fixed income securities involves certain risks such as market risk if sold prior to maturity and credit risk especially if investing in high yield bonds, which have lower ratings and are subject to greater volatility. All fixed income investments may be worth less than original cost upon redemption or maturity. Bond Prices fluctuate inversely to changes in interest rates. Therefore, a general rise in interest rates can result in the decline of the value of your investment.

    Definitions

    MSCI- EAFE: The Morgan Stanley Capital International Europe, Australasia and Far East Index, a free float-adjusted market capitalization index that is designed to measure developed-market equity performance, excluding the United States and Canada.

    MSCI-Emerging Markets: The Morgan Stanley Capital International Emerging Market Index, is a free float-adjusted market capitalization index that is designed to measure the performance of global emerging markets of about 25 emerging economies.

    Russell 3000: The Russell 3000 measures the performance of the 3000 largest US companies based on total market capitalization and represents about 98% of the investible US Equity market.

    ML BOFA US Corp Mstr [Merill Lynch US Corporate Master]: The Merrill Lynch Corporate Master Market Index is a statistical composite tracking the performance of the entire US corporate bond market over time.

    ML Muni Master [Merill Lynch US Corporate Master]: The Merrill Lynch Municipal Bond Master Index is a broad measure of the municipal fixed income market.

    Investors cannot directly purchase any index.

    LIBOR, London Interbank Offered Rate, is the rate of interest at which banks offer to lend money to one another in the wholesale money markets in London.

    The Dow Jones Industrial Average is an unweighted index of 30 “blue-chip” industrial U.S. stocks.

    The S&P Midcap 400 Index is a capitalization-weighted index measuring the performance of the mid-range sector of the U.S. stock market, and represents approximately 7% of the total market value of U.S. equities. Companies in the Index fall between S&P 500 Index and the S&P SmallCap 600 Index in size: between $1-4 billion.

    DJ Equity REIT Index represents all publicly traded real estate investment trusts in the Dow Jones U.S. stock universe classified as Equity REITs according to the S&P Dow Jones Indices REIT Industry Classification Hierarchy. These companies are REITs that primarily own and operate income-producing real estate.

Get Updates: