Posted by kdadmin on November 9th, 2016.
By 11:00 pm on Election Night, theDow Futures had plummeted nearly 900 points, on news that Trump had gained an early lead. Let me repeat that, NINE HUNDRED POINTS. That’s a 5% loss, in six hours. In other words, if you had $500,000 invested in the Dow, or the S&P 500, at the close of business on Tuesday, you would have lost $25,000before you went to bed. (Sleep tight.)
But, hopefully, you had made other plans …
Hopefully, you sold your stock positions months ago.
If you greedily held your stock positions, waiting for the S&P 500 to hit 2300, and Trump actually wins the Electoral College vote in December, you’re probably boned. At this point, we’re 8% off the S&P500’s summer market high. We’ll know more when the overnight market opens at 4am, Wednesday.
Sure, maybe there is still some limited growth left in the stock market, but I’d rather be betting on that growth AFTER the market tanks by 900 points than before it. You know, buy low, and sell high …
Hopefully, you’ve been steadily buying bonds, and reserving a lump of cash for just such a stock market train wreck.
Look at the chart above. It’s a recap of the major stock market swings since July, 2015. Each time the stock market (SPY) had a major crash, what happened to the bond market (AGG)? That’s right.Bonds went up or stayed flat.
I’ve been writing about this for months. For a recap, try Delusions of Grandeur: Risk Adjusted Returns & How the Market Works.
As you probably know, the popular vote doesn’t decide the President of the United States. The original designers of the constitution thought the average citizen wasn’t scholarly enough to elect a president without a bridge system, called The Electoral College. The 538 presidential electors, from each of the 50 states and the District of Columbia, are the ones who actually elect the president. The Electoral College vote will take place on December 19, 2016. The majority of Electoral College polls before the election showed H. Clinton in a landslide victory. And, though she has conceded the popular vote, how the Electoral College votes remains to be seen.
The problem with all of this, is that the stock market hates uncertainty. The analysts’ opinions about the likely negative impact of a Trump presidency on the stock market stems from this uncertainty; as many of his policies, and their potential effect on the market, aren’t exactly clear. Market uncertainty often leads to wild, seemingly erratic stock market movements. More stock market volatility and larger swings in prices could become commonplace.
It’s anyone’s guess. And that’s the problem.
Two weeks ago, I wrote and article called,” The Election: How Will It Affect Your Portfolio and Your Financial Freedom?“ In it, I discounted the relevance of the election as the one metric by which to predict the stock market’s long term performance. I talked about analysts’ consensus regarding each presidential contestant’s likely impact on the market, and I generally wrote off relying on “something as infantile, brainless and middling as a presidential election” for your long term financial freedom and happiness.
So, if you’re my client, the answer to the question, “The Election: How has it affected your portfolio & your financial freedom?” is:“Not at all.”
How does that sound after 5% overnight market swing?
It’s going to be a wicked ride until year end.
Then, take a break from the media mania and wait for The Electoral College vote.