What the election may mean

A surprise victory by Donald Trump had stocks reeling for a very short period of time as the results were being tabulated on election night. However, by the following day’s close, the market shifted from a potential 4% loss—as suggested by S&P futures overnight—to a 1% gain. Since then, the S&P 500 has rallied more than 5%.

Now that we know the results, what might the election mean for active investors? If you are investing for the longer term, the key things to focus on remain the core drivers of your portfolio’s performance—earnings and other fundamental factors. As the market adjusts to the new political reality, however, there may be opportunities for investors in areas of the market where policy uncertainty may lead to mispricing.
Election fallout
As of late November, the specifics of president-elect’s agenda are not known with a great degree of certainty. A panel of experts points to several possible trends and some potential investment implications. These include:

Washington: Expect an early focus on deregulation, increased infrastructure and defense spending, and tax reform. But sweeping changes to trade policy will be complicated by divisions within the GOP.
Economy: Potential fiscal expansion could boost growth, as well as deficits and inflation. But any moves away from globalization may mean lower returns on capital, lower real interest rates, and a weaker dollar.
Stocks: Consider using any volatility as an opportunity to rebalance or upgrade your portfolio.
Bonds: A December rate hike is likely, but rising inflation could mean lower real rates. Consider inflation hedges like TIPS.
Sectors and industries: If enacted, increased federal spending could help materials, industrials, and defense. Deregulation may help health care and energy.

Of course, these forecasts are by no means certain to come to fruition. Moreover, even though the market has stabilized in the […]

How to Handle Market Volatility at the End of the Year

From a market perspective, September and October tend to be the worst performing months historically. Tack on a divisive election and a Federal Reserve that cannot make up its mind whether to raise interest rates, it’s no wonder people are on edge when it comes to their finances.

Here are some tips and thoughts on how to handle emotionally “the high tide of the silly season.”

Turn off the news. No matter what your political persuasion, TV news is less about facts and more about advertising dollars. How do you get more advertising dollars? Get more viewers. How do you get more viewers? Be as hyperbolic as possible. Try to scare as many people as possible to your point of view. Run election trading specials and which stocks to hold if X wins. None of this helps psychologically and a lot of the time they tend to be contrary indicators—meaning that the exact opposite will happen. We all should be informed citizens, but TV sources of news do less to educate the public than just about any other medium.
Never make investment decisions off the headlines. This is tied to the first point. Making an emotional investment decision in general tends not to work out. Investing based on a headline or TV news is potentially the greatest threat to your investments and financial security. Most headlines tend to be late in the cycle—think of the magazine covers in 1982 all saying something to the effect of “The Death of Stocks”—or at the actual inflection point in the market where the opposite is about to happen. One way to overcome emotional investing is to work with an advisor who has an investment process. Having a process helps with the emotions of investing and brings a greater discipline […]

The Election and Your Investments

Donald Trump’s surprise victory—along with a GOP sweep of Congress—is sending shock waves around the world. The Republican sweep will give Trump momentum as he takes office. But there is still considerable uncertainty about his policy plans, and with Republicans falling short of the 60 votes needed to pass most legislation in the Senate, some bipartisan compromise will still be needed for the president-elect to achieve his goals.

What’s it likely to mean for investors? Yesterday’s market jump was surprising considering many gloom and doom predictions.  But a post-election pullback should not be surprising. Indeed, since 1980, the stock market has dropped about two-thirds of the time the week after a presidential election—with a median loss of 1.9%. But did you know that three months later, the market has been up two-thirds of the time—with a median gain of 5.7%? More recently, a big market decline after the Brexit vote was followed by a big rally, which recaptured all the post-Brexit losses, and then some.

That’s why it’s critical at times like these to have a long-term plan—and stick with it.

What could a Trump presidency mean for the economy and investors longer term?  In general, many experts believe there are still many unknowns regarding what the new president and Congress may be able to accomplish, but point to two areas of agreement where Congressional Republicans and Trump align: tax reform and regulatory reform.

More importantly for investors, is that the bigger long-term drivers of stock and bond market performance are economic. And the U.S. economy is in decent shape, with unemployment low, corporate earnings improving, and the global economy on the upswing. So, if you liked your portfolio strategy on Monday—and it reflected your circumstances, emotional tolerance […]

How the stock market performs on, and after, Election Day

The race for the White House will come to a historic conclusion today.

Wall Street has been a whirling dervish of anxiety, tied to the vacillating probabilities that Republican candidate Donald Trump will beat Democratic rival Hillary Clinton and insert a hefty dose of uncertainty into the economy.

But as unpredictable as this election run has been, researchers found that stocks have been fairly predictable after the election, tending to sell off. U.S. equities have risen only about one out of every three times since 1928, according to the data, tracking S&P 500 index returns on the days after a U.S. presidential election.

Dow Jones’s data team says the average change on the day after Election Day is 0.9%, with the top 5 declines arriving in the wake victories by Democratic presidents.

To be fair, Dow Jones data also show that three of the five biggest gains have come following wins by Democrats, including a 1.5% rise after Bill Clinton’s second-term victory Nov. 5, 1996, and a similar jump for Franklin D. Roosevelt on Nov. 3,1936, representing a landslide victory and the second of four terms for Roosevelt.

Tracking performance on Election Day is a little trickier because between 1932 and 1980 it was designated a market holiday. For returns including 1928 and from 1984 to the present, however, returns have been positive about 78% of the time.

Of course, the vagaries of this election cycle has been tough on investors, but the good news is it is all over today.

Source:  MarketWatch


Have you looked at your 401(k)?

Have you looked at your 401(k) lately?  Many are convinced the best thing to do with a retirement plan is not fiddle with it.  It is good to ignore short term volatility and focus on long term goals.  But you shouldn’t ignore your account entirely.

A lot of people set it and forget it.  That is a big deterrent to really creating wealth over time.

You should check your account at least once a year to make sure market gyrations haven’t caused you to be overly invested in stocks or bonds.  In other words, rebalance, if needed.

If you are a 401(k) saver who hasn’t considered asset allocation, it is the time to start.

D2 Capital Management offers impartial 401(k) reviews.  Please contact us at charles@d2-cm.com for details.

Pre-Election Market Movements

The S&P 500 closed down on Thursday to extend the indices losing streak to eight straight sessions. This is the longest losing streak for the index since October 2008 and only the second time in the last two decades it has suffered a slide of this size. There is a major difference between the 8-session losing streak this week and in 2008. The S&P 500 has last 2.9% over the last eight trading sessions versus a 23% crash that the index suffered during the October 2008 streak.

     Looking back beyond 20 years we see that this type of streak is extremely rare. It also occurred in June 1996, September 1991, and August 1982. If the market does not break the streak on Friday the 9-session losing streak would be the longest since 1980 – 36 years!

     So why is this occurring?

     Pretty simple – the election.

     The uncertainty surrounding Tuesday’s presidential election is unprecedented as proven by the numbers just mentioned as well as the circus the country has had to endure the last few months. There is not election in recent history where each candidate is so disliked by Americans and this distaste towards our leaders is not good for our psyche. It leads to investors, both big and small, to the sidelines until a winner is declared and more certainty is evident.

     Whether you are a Donald Trump fan or not, his recent rise in the polls can be blamed for the losing streak. First, the race is now neck and neck and the fact we do not know who the next president will be is too much uncertainty for the stock market to handle. Second, Trump is viewed by Wall Street as […]