Market Recap – Presidential Election Edition

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Market Digest – Week Ending 11/11/16

This week the US presidential election dominated headlines as well as global markets. US Stocks rallied early in the week when Hillary was cleared of FBI charges, and again on Tuesday when it appeared she was the favorite to win the presidency. This sharply reversed Tuesday night in the futures market when Trump upset the polls and emerged as the nation’s surprising new victor. But after some time to digest, US markets again moved higher on Wednesday and Thursday. At the same time, investors punished Emerging Markets on fears a Trump presidency could lead to greater trade protectionism. US bonds and gold also sold off as investors moved back into risky assets.

Weekly Returns:

S&P 500: 2,164 (+3.8%)
FTSE All-World ex-US: (-0.1%)
US 10 Year Treasury Yield: 2.15% (+0.38%)
Gold: $1,225 (-6.1%)
USD/EUR: $1.085 (-2.6%)

Major Events:

• Monday – Stocks rallied after the FBI said over the weekend Hillary Clinton would not face charges over a renewed probe of her email practices.
• Tuesday – Americans across the country hit the polls to cast their votes for the next President of the United States, along with other positions and ballot measures.
• Wednesday – To the surprise of many, including every media outlet in the country, Donald Trump defied the odds and defeated Hillary Clinton in the 2016 Presidential Election.
• Wednesday – Along with the presidency, Republicans won control of both houses of Congress.
• Thursday – US weekly jobless claims fell more than expected.
• Friday – President-elect Donald Trump met with President Obama, stating afterward he would consider leaving pieces of the Affordable Care Act in place.

Our take:

It’s been a whirlwind of a week. It seems half of the country still has their head hung low, while the other half is jumping for joy. But regardless of your personal stance, the people have spoken—Donald Trump is the next President of the United States.

The impact on financial markets has been interesting to watch. On election night, as it became clear what was happening, stocks initially tanked. S&P 500 futures were down the maximum allowable 5% in after-hours trading. But most of the fear dissipated as investors had time to digest the news, allowing risk assets to recover initial losses. US stocks opened flat and even posted strong positive returns over the remainder of the day, with momentum continuing into Thursday.

But the overall trend somewhat masks the underlying sector volatility. After Trump secured the presidency, Health Care stocks rallied hard since most expected increased regulatory scrutiny from Clinton. Financials rallied on the prospect of higher interest rates, as did Basic Materials on speculation of increased infrastructure spending. Technology stocks moved higher on Wednesday, and then tanked Thursday on fears Trump’s overseas trade policies could impact multinational firms. Utilities and Consumer Defensive stocks, which have been a defensive safe haven of late, sold off as well.

This appears to be a combination of a “risk on” environment and speculation on Trump’s proposed policies – keyword being “proposed.” Without full details, it’s far too early to know how his proposed policies will impact specific industries and sectors. At the moment it’s just a guessing game. More often than not, campaign trail policies get diluted and/or changed when the President-elect finally reaches the White House. Some are dropped altogether. Trump is even trickier to predict given his lack of any political history.

The truth is no one knows what will happen. Case in point is Friday’s market moves. Many of the aforementioned sector trends reversed with Basic Materials and Health Care moving down, while Technology was up. As we’ve noted several times, markets can be volatile in the days and weeks following an election and that is exactly what we’re seeing.

Our advice? Stay well-diversified and positioned for the long-term. And just as important, try to avoid any emotionally driven changes to your portfolio.

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Brendan Erne, CFA
Brendan Erne serves as the Portfolio Management Team Leader with Personal Capital Advisors. He has over 15 years of industry experience, spanning almost all levels of the investment process, including several years at Fisher Investments as an equity analyst covering the Technology and Telecommunications sectors. He also co-managed a large cap growth portfolio and co-authored Fisher Investments on Technology, published by John Wiley & Sons. Brendan is a CFA charterholder.

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