Investment Update: November 3, 2020 - Election Day Update
The markets have recently been focused on three main headlines - the election, a stimulus package, and the approval of a Covid19 vaccine. We often say the markets dislike uncertainty and would rather know bad news than have uncertainty linger.
The markets have a variety of risk categories that can affect market performance. Some examples include interest rate risk, currency risk, commodity risk and headline risk. “Headline Risk” is any news story that can adversely affect the markets. Obviously, any item in the risk category will be a news item, but headline risk is typically a new announcement or the culmination of a cyclical event.
All three of these headline risks to the market are questions that will be answered soon:
- The election will be decided tomorrow, this week or hopefully, sometime soon. While there may be concerns to the contrary, there will be a conclusion to the election cycle, hence this piece of headline news.
- Both sides see the need for a stimulus package, so we believe the likelihood of an agreement after the election.
- There are numerous pharmaceutical companies working towards a safe and effective COVID19 vaccine. The end of the year is an optimistic outlook for a vaccine - for now.
There will certainly be post-election volatility just as we are now experiencing pre-election volatility. Remember volatility works both ways and is our friend when the markets rise. There is an old adage regarding the markets; “Buy on the rumor, sell on the news”. So, it is very tough to tell in this environment if a sell-off would not be expected, or conversely a rally. We would like to simply state that our well-rounded and diversified asset allocation will keep us well-positioned throughout this period of uncertainty.
If the markets sell-off, it would likely be a rotation among the eleven economic sectors in the markets. The selling often occurs first. For example, sell energy and purchase financials, or vice-versa. It appears that both parties favor some type of a large investment in infrastructure and this would be an economic boost and also spur a rotation among stock sectors.
There will always be adjustments to be made in any market. In researching how we have lived through many elections, the one long-term constant is that the markets will stay focused on earnings and economic growth.
We will be issuing market updates as we weather the election results coming and as always, please feel free to reach out to us with any questions. We appreciate the opportunity to serve you.