Ronald Reagan famously said, “The nine most terrifying words in the English language are, 'I'm from the government and I'm here to help.” We believe that the recent 2018 mid-term election demonstrated Reagan’s veracity and wisdom.
Demonstrating our hypothesis this past week was simple for market watchers. By late Tuesday night we knew that a divided government inevitable, if only for the next two years. Regardless of individual preferences, overall investor confidence was on display as the Wednesday trading session took the Dow-Jones Industrial Average (DJIA) up a significant 545 points, or 2.13%. A very nice day for investors, who are reeling from a steep October sell-off.
Many politically-oriented investors were personally disappointed, as neither side achieved a sweeping victory. Yet market euphoria reigned for a full trading session, as investors were secure in their knowledge that nothing of consequence would happen with a divided Congress.
Then some “other stuff” happened. Suddenly, some settled races were again in question, as vote totals kept evolving after reporting times were passed. Memories of the 2000 Gore/Bush debacle were refreshed, and investors cringed with uncertainty. The DJIA started to retrace its gains, and ended with a smaller weekly advance. Still a welcome up week, but it somehow felt worse.
This election will eventually be completely over, and a divided government will be with us for a couple years, if not longer. Rather than bemoaning our losses, no matter what side you are on, we should approach investing with the knowledge that markets are far more sensitive to uncertainty than to “who won and who lost.”
Like politicians and political parties, certain stocks and certain industries will become winners and losers. Predicting (guessing) will most likely get you nowhere. Sound portfolio management involves diversifying your holdings so as not to get swept away by a couple market losers.
Expect more controversy and volatility, and you should not be disappointed. Attempt to outsmart the market reaction, and you will likely be disappointed.
This “crisis” will pass, only to be replaced by another “crisis.” The media will see to that, believe me. And the beat goes on.
Van Wie Financial is fee-only. For a reason.