View from the Chair: Windermere's Market Outlook (November 2016)

We've made it.  One more day until November 8, 2016.  As we discussed last month, it seems as if the world is holding its collective breath - waiting for some certainty and clarity as to the path forward for the next four years.  Everyone we've spoken to seems equal parts discouraged by the tone of this year's election cycle and relieved that soon it will be decided.

The question we have been getting most often (and the one we too are asking) is, what will happen to the markets on Wednesday?  The consensus answer appears to be a slight rally if Clinton wins and a marked sell-off if Trump prevails.   However, a perhaps more important focal point should be what occurs in the other elections. 

Historically, the best conditions for the markets is a split government, meaning at least one of three branches is represented by each party.  If the polls are correct, we will have such a government (with a democratic president, a republican house, and a democratic (or potentially republican senate).  This should lead to somewhat favorable market conditions as such a split government prevents extremes and keeps policy in check.  While gridlock is not appealing to many citizens (as it appears nothing gets accomplished), markets do thrive on certainty and limited probability of tail risks (like geopolitical disruption or sweeping policy changes).  In addition, both presidential candidates seem likely to stimulate the economy, which should translate thru as a positive for equity markets.  Although, the favored sectors will vary under a democratic and republican presidency.

The short answer:  it's truly impossible for anyone to predict what will happen on Wednesday. Brexit clearly showed us that earlier in the year.   Regardless of the election outcome and near-term noise, we remain confident in the positioning and power of the companies we own in your portfolios.  And we also remain confident in the ongoing demand for earning assets in our low rate world, meaning there is a steady supply of "buyers" in this marketplace.  As a result, we're watching the election closely and are poised to deploy any cash in the event of near-term corrections.  

Do your part and vote on Tuesday!  And after that, remember all that is great about this country and the companies that call it home.  There remains lots of opportunity ahead!