Portfolio Advisors Blog

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The Market's Reaction to the Presidential Election

Once again, an important lesson has been reaffirmed.  Those who try to predict short-term market movements do so at their own peril.  The recent presidential election was just one of many such affirmations.  If you were glued to your TV the night of the election, you watched reports of the Dow Futures falling over 800 points, and you probably went to bed thinking that the following day would bring even greater declines.  You would have been wrong.  The market opened having reversed course, and by the end of the day the Dow and the S&P500 were not only positive but closed posting strong gains.    

Since the election, we have seen markets continue to advance and to hit new highs.  Many wonder if the trend will continue.  In the short-run, no one can be certain.  What we do know is that this year markets have confounded nearly everyone.  The year began with the S&P500 falling 9% during the first six weeks of the year, only to rebound and move sharply to the upside.  We then watched a vote in the United Kingdom with an unexpected result.  The reaction to “Brexit” resulted in global market declines the morning after with the S&P 500 suffering a 5.4% decline, its largest single day loss since 2011.  You know the rest of the story.  Within days, the S&P had regained its footing and continued to advance. 

So, what can we learn by what has occurred this year?  We believe that the lesson this year has underscored our core belief that investors are served best by maintaining a broadly diversified portfolio and by maintaining enough cash and bonds to weather the inevitable market storms that come and go.

We are also often asked if political party plays a factor in the ups and downs of the market.  In general terms, markets have had a long history of an upward bias regardless of who has been in the White House.  For a graphic display of market performance over all US presidents since 1926, please click on link below.

Market-Returns-During-an-Election-Year.pdf

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