Prior to the Tuesday election, we have been asked repeatedly how to get ready for the results. We have stated each time that the best approach was to do nothing, despite the gloom and doom in the media, should the “wrong thing happen.” It has been our view that “Mr. Market” won’t care for long. The big banks did not fear Hillary, because they pre-paid their dues with her in speeches over the years. Their fear of Trump was based solely on politics, which is essentially meaningless over time. So, after the unusual election, we sent an early communication to our clients, friends and families, in the hope that all would remain calm.
This is the transcript of the communique’ that was sent Wednesday, named “What now?”
To our valued clients and friends,
On November 8, 1994, Congress received the largest rebuke in modern history, as the House of Representatives reversed decades of history when Republicans swept into control. Peter Jennings, a Canadian-born “big three” newscaster, described the result as American voters having a “hissy fit.” As we remember it, there was so much wrong in Washington, D.C. that a change was absolutely warranted.
In my memory (Adam wasn’t old enough), there was one other sea change in the political spectrum. It occurred on November 4, 1980, when the polls showed that Jimmy Carter would win an easy re-election, but the people disagreed; the Reagan revolution had begun.
November 8, 2016 was both of those, on steroids. Everyone knows our political leanings, so there is no need to get into any of that. What we are interested in, and certainly what you want to hear from us, is what effect this should have on the markets. Here’s our view, with some anecdotal evidence.
Last week on the radio show, we did a trivia question on the recent 8-day losing-streak in the market. This is so unusual that the last occurrence was in 1980 – one of the other big political change years. That time, however, it happened after the election (December 1, 1980 started the streak). The most recent one was over before the election, when the market breathed a sigh of relief due to the FBI announcement that they would not pursue Hillary Clinton’s email trouble any further.
We all know how the market did after Reagan’s inauguration, as a period of prosperity propelled the market ahead by 118% in 8 years.
We are also reminded of the recent “Brexit” vote in England, where the prognosticators were certain of rejection, but the voters overwhelmingly expressed their dissatisfaction. While the actual separation has not yet occurred, England’s economy, widely expected by “experts” to be devastated, is just fine, thank you.
Where does this leave us? Last night, as many of us were burning the candle a little longer than expected, the market futures were tanking. Wall Street detests indecision and surprise, and the election results were providing increasing amounts of both. At one point, trading was halted, with the futures down over 700 points. After about 4 hours of sleep, the futures were down only about half of that. As this is written, they are down in the 200’s, but very volatile.
What should investors do about this market shock? We believe that the election results will eventually result in a strong economy, which will translate into a rising market. The question is, of course, when? We believe that the biggest mistake the average investor could make right now is to sell on the results. Similarly, going “all-in” sounds a little risky, as volatility will most likely be astounding for a while.
Everyone should make up their own mind, but those who have some cash may want to watch the market for an hour or a day or a week, and then work into the market in pieces. Buying opportunities should become evident during the turmoil.
From our standpoint, this should be fun! Whatever your politics, think about sectors. Some good possibilities include energy (coal, oil, natural gas), railroads and other transportation, health care, biotech, the list goes on. Just don’t be in too much of a hurry.
We need to ride the volatility for a while. Keep in touch, and let us know what feels good for you and your money.
Prior to the election, we said that it was a good time to do nothing for a while. Now that it is over (for the most part), it is time to formulate a plan. What are the short-term effects, and what are the long-term effects, of the Republican sweep? What sectors should thrive, and which should suffer? These are questions we welcome in our office, via email, or on the radio show.
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