The Polls Were Correct. So Now What?
Going into the November 6 Mid-Term Elections, the consensus was that the Democrats would take the House of Representatives and the Republicans would keep the Senate. And in fact, this did play out and continues a recent trend of shifts in political power. In the seven elections since 2006, US voters have removed the party in power six times. Going back 100 years, this type of political volatility is unprecedented.
So now what? Here are key market-related observations from our perspective:
- We now know the composition of the US government for the next two years. The market does not like uncertainty, and uncertainty has been removed.
- Gridlock likely will prevent any further tax reform or significant legislation. Historically, the market has performed well when we’ve had divided government.
- The election results will have little if any impact on global trade policy and tariffs. For the most part, the President sets trade policy independently of Congress; we’ll watch with interest how this issue develops.
- With the election behind us, market-watching can focus on hard data such as corporate earnings (up ~26% YOY in Q3) and a sound US economy (~3% 2018 GDP).
- As a rule, equity volatility has accompanied mid-term election years (see chart above). However, stocks have responded quite strongly in the twelve months following these past corrections. Seasonally, the back half of the fourth quarter has been a very strong period for stocks.
Lastly, welcome to the first day of the 2020 Presidential Election! Buckle up; it’s likely to be an interesting ride.
Each client’s investment needs, risk tolerance, and goals are different. This newsletter is not meant to be advice for any specific investor. Nothing in it should be construed as an offer to sell, or a solicitation of an offer to buy, any securities. This should not be used as the sole basis for an investment decision. Any opinions or estimates are subject to change without notice. For information about how any of this information applies to your personal financial situation, please contact your Wealth Advisor.
Past performance is not a guarantee of future results.
Although the information provided to you in this newsletter was obtained or compiled from sources that we believe are reliable, J.J.B. Hilliard, W.L. Lyons, LLC cannot, and does not, guarantee that the information or data is accurate, timely, valid, or complete.
All investing involves risk, including the possible loss of principal. You should carefully consider investment objectives, risks, charges, and expenses of any investment before investing. Diversification and asset allocation do not guarantee a profit or guarantee against a loss.
Stock markets, especially foreign markets, are volatile and can decline significantly in response to adverse issuer, political, regulatory, market or economic developments. The bond market is also volatile, and fixed income securities carry interest rate risk. (As interest rates rise, bond prices usually fall, and vice versa. This effect can be more pronounced for longer-term securities.) Fixed income securities also carry inflation risk, liquidity risk, call risk, and credit and default risks.