If you’re like most Americans, you’re probably a bit surprised this morning at the results from yesterday’s presidential election. Who could blame you when all we’ve heard for weeks from polls, pundits, commentators and so-called experts was that a second Clinton administration was all but a foregone conclusion.
Hearing all this talk the markets also had certain baked in expectations of the election results. Namely, that Donald Trump would be soundly beaten a for the third term in a row the country would elect a Democrat as president.
Much to the chagrin of markets all that polling and punditry proved to be erroneous and the markets, spooked by the sudden change of direction over-reacted as they typically do. Overnight, while results were still coming in but looking more and more like a Trump victory, S&P futures plummeted and trading had to be halted at -5%. It was widely expected that this would carry over into regular trading hours on Wednesday November 9th, but that proved not to be the case.
It seems that while markets can over-react in a split second, they can also correct course quickly. This is not the first time this has happened. It most certainly will not be the last. In fact, looking back at the last 22 presidential election cycles, the day after election day sees a 1.5% move, on average. Sometimes this is a market gain, other times a loss. More importantly, however, is that the direction and magnitude of the move on the day after election day is not at all reflective of where markets end up a year from now nor is it a harbinger of how steeply they will move in that direction. In other words, this signaling is completely worthless and a typical panic/celebration move as market participants vote their gut reactions with their wallets.
Despite the huge sell-offs in futures overnight, once trading opened, markets were remarkably more subdued – perhaps owning to cooler heads prevailing once a Donald Trump presidency was given time to sink it.
A few hours into trading on Wednesday, as this is being written, not only have markets shook off their panicked trading, they have also managed to turn small losses into modest gains. Of course, all this could change as new information comes out and as investors sentiments and public opinion changes with the wind. In other words, expect more volatility that usual until markets settle into the idea of a President Trump.
It is important to note, that in theory at least, a Donald Trump presidency should be business friendly. Provided his policy initiatives match more closely his ‘less regulation’ rhetoric than they do the ‘tax imports 35%’ variety this could be a boon for US business and therefore attractive for investors.
The downside is that Mr. Trump has been famously inconsistent and prone to saying things that could be considered problematic if markets were to take them at face value. Hopefully, as President-elect and later as President, he can control the urge to make bold, brash statements because in this role, and especially now, markets need consistency of message and stability because they hate uncertainty more than anything else.
It will be interesting to see how a Trump administration handles the DOL Rule, which is scheduled to go into full effect in the second quarter of 2017. It is a rule that was broadly supported by Democrats but not by Republicans. On the one hand, the rule increases the standard of care for advisors, bringing brokers responsibilities in line with that of Registered Investment Advisors (RIA’s) but on the other hand does so only for select retirement accounts and at a higher compliance cost to firms providing advice – a price that will likely be passed on to consumers.
For our part, Scale Investment Group has always adhered to the higher Fiduciary standard not the lesser Suitability standard and regardless of political party in the White House or the status of the DOL ruling we intend to continue to do so for all clients and account types. To that end our policy of maintaining low costs because it is good for clients is not going to change. In the event the DOL rule is reversed, consumers will once again have to take up the burden and do more of the heavy lifting when it comes to due diligence when hiring a potential investment advisor.
As always we are happy to serve as a resource or second opinion about the DOL Fiduciary rule or any other investment matter and can be reached at 800.350.6672 during regular business hours.