Stock Futures Pare Overnight Losses as Donald Trump is Elected President of the United States11-09-2016 |
Sources: Equity Market and Fixed Income returns are from JP Morgan as of 11/04/16. REIT, Rates and Economic Calendar Data from Bloomberg as of 11/07/16. Earnings statistics are taken from FactSet as of 11/04/16.
If there is one thing that markets typically don’t like, it is uncertainty. Both good and bad news can be accounted for in many trading strategies but uncertainty creates a paranoia that forces many investors to hold large cash positions and ultimately can result in a drag on future returns. Uncertainty is also the reason why when Tuesday night’s election looked as though it was headed for a contested result, or even an unprecedented Electoral College tie, Dow Jones Industrial Average futures traded over 700 points lower and S&P 500 Index futures hit a circuit breaker that prevented trades below the 5% mark. Following President Elect Donald Trump’s victory speech, the tone of which was more conciliatory and unifying than most of his campaign rhetoric, futures markets paired losses and as of Wednesday morning were actually trading higher.
It appears, at this time, the reason for any selloff may not so much be due to the potential policies he is likely to pursue but rather the belief by many prior to Election Day that Hillary Clinton was likely to win along with the uncertainty about what exactly his policies will be and how successful he may be in implementing them. Hillary Clinton was believed to be a known commodity to stock market participants based upon her previous political experience and certain stated positions while Donald Trump was viewed as more of an unknown commodity with no previous political experience, though having certain stated positions of his own. It is also important to consider that the day after an election is typically a “down day.” Since 1928, the market has sold off the day following the election 68% of the time, including a 2.4% drop in 2012 and a 5.3% fall in 2008 as measured by the S&P 500 Index.
Once the dust settles from this historic election, investors would be wise, in our view, to refocus their attention to what is shaping up as a stable economic back drop. With 85% of companies in the S&P 500 having reported Q3 2016 results, earnings appear on pace to post a 2.7% gain – the first quarterly gain in earnings since the first quarter of 2015. Last week’s jobs report continued to show a strengthening labor market with 161,000 gains, wage growth beating estimates by ticking up 0.4%, and the U3 unemployment rate dropping to 4.9%. Manufacturing both in the U.S. and globally has also improved with the global PMI (Purchasing Managers Manufacturing Index) reaching its highest level since October 2014.
One positive takeaway from last night’s election, politics aside and purely from an equity market standpoint was Republican’s control of both congress and the white house, a combination that has historically coincided with attractive stock market returns. Volatile markets are likely to persist until there is more clarity as to who President Elect Trump will appoint to his cabinet and what policies he is going to focus on during his first 100 days. This highlights a point that we have continued to stress with investors in terms of being comfortable with and confident in both their risk tolerance and their time horizon. Far too often investors are willing to take more risk and claim a “long term” time horizon when markets are advancing but shift to a more conservative sentiment when markets are declining. We believe that one of the best ways to maintain discipline is by completing a financial plan that focuses on the long term investment goals needed to meet your specific financial objectives. To work with Hennion & Walsh’s financial planning team, or to simply have a portfolio analysis report completed to better understand your current portfolio holdings, please do not hesitate to speak with your Hennion & Walsh Financial Advisor or a member of the Hennion & Walsh Asset Management Team.
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