Call it predictable commentary on a very unpredicted election outcome. The Wednesday morning-after polling drama featured euphoria, heartbreak, relief and outright fear from the voting populace, and 401(k) asset managers (along with everyone else) were weighing in on its financial implications.
“It is worth remembering that the day after an election, market activity is not very instructive for longer-term returns,” PNC Chief Investment Strategist Bill Stone soberly said. “Though stocks [were] sharply lower …recall that the S&P 500 was more than 5 percent lower the day after Obama’s 2008 victory, but up 14.9 percent over the next 12 months.”
Following any election, Stone added, and regardless of the outcome, there is usually a “relief rally.”
“Looking at data since 1984, markets typically have a one day reaction, either to the slight positive or negative, but tend to go on to positive returns over the next 12 months (Chart 2, page 3). In 15 of the 22 elections dating back to 1928, the stock market has traded lower,”he explained.
Quoting Strategas Research, Stone noted that the fourth quarter of the fourth year of a presidential election cycle shows the highest quarterly performance versus any other quarter. What normally follows in the first quarter of a presidential term is often, and not surprisingly, market lows asthey try to assess the new political landscape and its impact on Washington.
“Another positive data point of note: election years tend to be favorably correlated with market returns. Since 1928 the median return of the S&P 500 in an election year has been 9 percent and the return has been positive 15 out of 21 times.”
Roger Aliaga-Díaz, Vanguard chief economist for the Americas, had much the same sentiment.
“Stay focused, keep perspective, and, above all, don’t make drastic changes to your portfolio,” Aliaga-Díaz advised. “It’s important for investors and for our clients to remember that volatility increases in every election, particularly in years where there is a change of party in the presidency, and sooner or later markets always go back to fundamentals. The U.S. economy in particular has shown resilience compared to a much weaker global economic environment. We are optimistic about the long term.”
High-profile money manager Bob Doll, chief equity strategist with Nuveen Asset Management, did a bit of chest beating, noting that the firm predicted back in January that Republicans would win the White House and retain control of Congress.
“Up until the night of the election, we thought we would get this one wrong,” Doll conceded. “This election will no doubt go down in history next to the ‘Dewey Defeats Truman’ one as an event that shocked nearly every expert. It seems that in an election season dominated by negatives, more voters felt comfortable with the unknowns associated with Donald Trump than they did with the scandals that would have been associated with a Hillary Clinton victory.
“Financial markets tend to prefer clarity, so we think equity markets would have preferred a Clinton victory,” he added. “We expect to see volatility rise, at least in the short-term.”
MainStay Investments Charles Reinhard, managing director and head of portfolio strategy, zeroed in on Trump’s promised tax cuts.
“In our view, Trump’s victory represents uncertainty for the markets, especially in the areas of global trade and existing diplomatic relationships. The economic agenda next year is likely to center on infrastructure, including energy infrastructure, as well as defense spending, tax cuts that bring the top income tax rate from 39.6 percent to 33 percent, a repeal of the estate tax, and reducing corporate taxes from 35 percent to 15 percent.”
With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots.
