Traders with U.S. investments shouldn’t be rash after election
Money experts warn against changing financial strategy according to vote’s outcome
Money managers are getting a number of questions from clients about the U.S. election — not who to vote for, but how it could affect their money.
The historical trading data can be parsed a number of ways, but the consensus view from money managers: Don’t be rash.
“You don’t want to trade your portfolio based on the outcome of an election,” said Carol Schleif, chief investment officer of Abbot Downing, the Minneapolis-based wealth management arm of Wells Fargo.
Schleif advocates sticking with your investment strategy, since campaign rhetoric is generally more severe than any policy that eventually gets negotiated between Congress and a president.
Strategists at Wells looked at four possible outcomes: a Democratic president and divided Congress; Republican president and divided Congress; Democratic president and Republican Congress; and a Republican president and Republican Congress.
They don’t see more than a 40-percent probability for any of the four.
But their prediction for the best possible outcome for the market, based on historical data, slightly favoured the 40-per-cent probability of a Democratic president with a divided Congress.
“No matter which way the election comes down, it will remove a chunk of uncertainty,” Schleif said.
Other investment pros also cautioned not to drive long-term investment decisions by the elections.
“There is no question that empirical evidence suggests that markets tend to get a little volatile the closer you get to an election, and even a little bit afterward while the dust settles,” said David Joy, chief market strategist for Minneapolis-based Ameriprise. “All of that argues for a little bit of a cautious view.”
Joy believes U.S. stocks may be a little overvalued right now, but that earnings growth should improve in the fourth quarter and that the U.S. economy will do better in the second half than it did in the first. He believes the markets have likely priced in the probability of rate hiking from the Fed, so there remains room for the market to rise yet this year.
“We think from where the U.S. market is right now that we’ll close the year slightly higher,” he said. “Our year-end forecast that we made back in January was 2,175 (for the S&P 500). We revisited it a couple times, but haven’t changed it.
“By no means would we suggest you stay out of the market,” Joy said.
John Tousley, senior market strategist at Goldman Sachs, told the Chartered Financial Analyst Society of Minnesota’s InvestMNt conference in the summer that investing should not be tied tightly to politics.
His advice: “Don’t go for the headlines about who is best for the markets. Express your political passion with a vote, not a trade.”
Campaign rhetoric tends to be more severe than the policies that result after the election, bankers have found.