The Election and The Markets

This presidential race is seemingly generating more interest, expressions of concern, and questions from clients than past elections. Some clients want to know how the election impacts our investment views and how we might adjust our positioning in anticipation; others have asked more generally about how we factor elections into our analysis and portfolio construction.
First and foremost, we never try to bet on outcomes. What we try to do, regardless of market or election cycle, is maintain an investment discipline focused on the long term, based on analyzing valuations and fundamentals, that attempts to limit downside risk. Viewed through that lens, here is what we are watching, analyzing, and positioning for:
1. Market Volatility
Along with sudden shocks (e.g., terrorist strikes), unexpected developments (such as the Brexit vote results), and lately, central bank actions, presidential elections can certainly drive short-term market swings. But the long-term impact is a different story. Data from Ned Davis Research on election cycles from 1900 through 2012 show that during presidential election years, financial market swings have tended to be magnified in the final weeks of the campaign. This has been particularly true in years when the incumbent party lost. Once voting was over, markets have generally rallied going into year end.
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