History in the making is the common theme for the month of October and the first few days of November. First, we have the conclusion to an historic US Presidential election. Could we have the first female president? Could we have the first billionaire president? Based on the level of divisiveness, the cynic in us might say that this election is historic for all the wrong reasons. But we’ll let you, the reader, be the judge of that one. At the time of this writing, the election outcome is undecided, so all we really can say is that it has certainly been, well, something historic.
In the days leading up to the election, we saw the US equity market fall for 9 straight days. 9 straight days of declines is something that had not happened for 39 years. The fall in the market and the uncertainty surrounding the outcome of the Presidential election are, at least on the surface, directly correlated. Markets don’t like uncertainty, but uncertainty is all this election cycle seems to have been able to offer for the last several weeks.
We also heard from the Federal Reserve in the last week. The Fed continued to keeps rates unchanged for the present, but barring a market calamity, the minutes from their most recent meeting suggest that a rate increase in December could be in order.
And finally, after 108 years, the Chicago Cubs won Major League Baseball’s World Series in a dramatic 7 game show down with the Cleveland Indians. If you are a baseball fan, this one was historic for all the right reasons.
We are on the eve of the election, and depending on the person your speaking to, you might think that we are on the “Eve of Destruction”. Not quite the protest that 1960s folk singer Barry McGuire had in mind, but you get the picture. Aside from being a very emotional time for many, investors are concerned with how this election may impact the market. In an attempt to address these concerns, Kroll Bond Rating Agency recently wrote that they see little to no economic change as a result of the election regardless of the victor. They noted an interesting contradiction, however. While it would appear, at least on the surface, that the Republican-Trump platform is more pro-growth, markets have responded during the last few months more positively to news that favored Clinton. This might indicate that the market is hoping for a Democratic President with a Republican-controlled congress—a situation that would most likely mean political gridlock and where little is actually accomplished. That’s kind of like rooting for a tie in sports. We don’t think Cubs fans would have welcomed that outcome.
We do believe that markets will return their gaze to the Fed and the European Union once the election is over. This would potentially indicate that additional market volatility and uncertainty would be the order of the day. And whether it’s an FBI investigation, gaffs by political candidates, or economic issues abroad, we know one thing: markets hate uncertainty.
Markets hating uncertainty was never more evident than the recent nine days of down. As we mentioned earlier, not since the 1980s have we experienced nine consecutive negative days. We saw volatility spike and confidence wain as the election loomed. Despite solid economic data that continues to come out of the US, markets continued to fall. Yes, we are seeing history in the making and with the exception of the Presidential election some of what are seeing in not entirely unprecedented. Yes, markets are volatile, and yes, we have uncertain economic times ahead as the Fed and the European Union sort out their own issues. But it does have the feel of déjà vu…sort of. As Mark Twain is believed to have said, “History may not repeat itself, but it certainly does rhyme.”
For those of you who haven’t heard yet, we are excited about Stefanie Crowe joining the Stone Bridge team as Director of Wealth, Knowledge & Happiness. Stefanie is a wealth advisory and banking veteran with over 20 years experience. Her title reflects the firm’s desire to help individuals and families maximize the benefits of wealth accumulation and live life to its fullest.