The Day After

It's likely that none of us will soon forget what transpired the evening of November 8, 2016 (and into the early morning of November 9).  Regardless of which party you aligned with, today - on the day after - we are all represented by the same president elect and we must chart a course forward.

There's no shortage of commentary and interpretation in the media and among friends/family and strangers alike today regarding the outcome, and we do not wish to add to that.   What we do wish to do is share a few thoughts as it relates to what impact we see this having on the markets and your money - summed up in five key takeaways and three recommended actions

1) There's danger in pre-market indicators  - The markets fell sharply in after-hours trading late last night/early this morning as a Trump victory appeared more likely.  Media rhetoric lead many to believe today would be a harsh market day, similar to that observed after Brexit.  Declines last night touched 5% pre market - however, at the open, markets were flat and closed up over 1% on the day.

2) Markets vote for certainty - The observed market rally on Monday and again on the day after add further validation to the market's desire for certainty.  No doubt, we will face uncertain times in the coming months as the transfer of power takes place and policy details become more apparent.  But for now, the market has its candidate and is taking a breath

3) Undivided surprise - If you read our newsletter earlier this week, we discussed how markets typically benefit from divided government.  And by all indications, that is what was expected (polls predicting democratic president and senate, republican house).  In the end, all three branches are republican.  Politics aside, from a pure market perspective, if we have to have a one-party government, a republic slate is historically far more market friendly.  An undivided government will certainly yield less gridlock and more action so we remain optimistic that positive change can occur 

4) Relief in Key Sectors - In today's trading, we witnessed upside movements in sectors that would have been challenged by democratic leadership (such as health care, which was sure to face pressure regarding pharmaceuticals and financials, which was facing added regulation and potential ongoing low interest rates).  Under republican leadership, these roadblocks are seemingly removed and the pricing of related stocks today have confirmed that thinking.  We have been invested in these sectors and added available cash to them today as well

5) The Rest of the World - Perhaps the largest question mark in our minds is the impact this election will have on international trade relations (and the related companies and financial markets).  Trump touts "America First"  and "Make America Great Again" - which by definition,  places the focus inward to our country and potentially threatens the growth potential of the foreign markets we have readily supported as investment opportunities.  Until we have a clearer view of the proposed policies, it is nearly impossible to know at this time how much of the Trump captain's trade/international talking points were rhetoric versus actual policy direction.  

Given all of that, what actions are we taking?

1.) Add on weakness - We viewed the overnight correction as temporary and this election as a net positive for US markets.  We added to positions this morning and will continue to do so, especially to strong and stable US companies, focused on those in the health care and financial sector

2.) Hold international weights - While we are not selling international names, we are not adding new funds today.  We will let the dust settle, research which markets are the most exposed to potential changes in trade regulations, and then determine the highest and best uses for capital outside of the US borders.  Rest assured - we remain committed to investing on a global scale and this election does not change that - it will simply redirect the focus

3.) Focus forward - We are clearly living in a divided country.  One tally we saw earlier today showed a difference in the popular vote of 30,000 (favoring Clinton) - that is a razor thin margin showing a deep separation.  The election is now over.  It's the day after. Time to focus forward and do our own individual part to move the nation forward



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!