While, as we write, broad equity markets are performing significantly better than futures markets had indicated they would last night, we still wanted to reach out regarding yesterday’s election results and the related short-term market impact. Certainly the impact of the election carries with it a vast array of implications for the U.S. and the world. We want to be very cognizant in recognizing that and pointing out that our focus today for this message, and our activities today at CCM, are market-related, as that is the aspect of the election where we are most accountable to you.
With that in mind, we believe the key to remember is that while the risk of negative impact on portfolios due to unexpected political outcomes can’t be completely eliminated (because that would require predicting future events), risk can be mitigated through diversification. By holding diverse portfolios, we are prepared ahead of time for large volatile events which affect specific areas of the market. Strategic diversification equips us with the ability to “watch and wait,” as one could argue that one of the worst times for an investor to make decisions is when they are surprised or caught off guard by a particular outcome.
Related points to keep in mind:
- What we saw with volatility overnight in international markets and this morning in U.S. markets was primarily a repricing of assets based on the unexpected results of the election. This is consistent with the market volatility we have been seeing over the past days and months as political polling revealed new information on who was most likely to win. The market ebbed and flowed as new information came in over time, and once the results became official, that last piece of uncertainty was priced into markets. While uncertainty related to the Trump Presidency remains, the uncertainty of who will become President has been digested by markets.
- Although the outcome of this election was more surprising than most, as judged by the pre-election polling heavily favoring Clinton, traditionally we do see market volatility calm down significantly following election days. If history is our guide, the uncertainty of the unknown is what triggers the greatest volatility in the markets.
- Our investment team is working diligently to monitor each client’s portfolio and is taking action when appropriate. We work hard to maintain the risk exposure that is appropriate for each client, as outlined in their investment policy statement, and we also stand ready to engage in tax loss harvesting when those opportunities arise. A period of market volatility does not necessarily mean that we will be transacting in every client’s accounts–only in those which need attention. During periods of uncertainty, our team sticks with the disciplined approach that we’ve established and communicated to our clients, which has produced successful long term results.
It is worth repeating that at CCM, we continue to believe that the time-tested strategies of diversification and tax-optimization that are built into your portfolio, in addition to remaining disciplined during volatile markets, will serve you well. Your peace of mind and ability to reach your financial goals are our priorities, and we encourage you to call us or schedule an appointment if you would like to talk about any concerns you may have.