As the world’s top investment manager, I must address the potential market volatility that often accompanies Election Day. History has shown that the stock market can react unpredictably to election outcomes, especially in cases of uncertainty or contested results. Now is the time to prepare your portfolio to weather whatever the day brings, and here’s why:
The Market Performance During Election Years
- The stock market has averaged a 7% gain during US presidential election years since 1952.
- This year, however, saw a 22% gain, making it the best election-year stock market of the 21st century.
- It’s crucial to remember that past performance does not guarantee future returns, and there have only been 18 presidential elections since 1952.
Past Election Outcomes and Market Reactions
2000 Election: Bush vs. Gore
- Dispute: The infamous contested outcome hinged on Florida’s vote count, leading to a legal battle resolved by the US Supreme Court on December 12, 2000.
- Market Reaction:
- Initial Decline: S&P 500 fell roughly 5% in the month following Election Day.
- Volatility Surge: The Volatility Index spiked, reflecting heightened fear among investors.
- End-of-Year Performance: Market remained subdued, reflecting concerns about a slowing economy.
2016 Election: Trump vs. Clinton
- Election Night Volatility: Trump’s unexpected victory caused panic in overnight futures trading.
- Market Reaction: Dow Jones dropped over 800 points overnight but quickly rallied on tax cuts and deregulation expectations.
2020 Election: Biden vs. Trump
- Dispute: Widespread concerns about mail-in ballots, delayed results, and legal challenges weighed on the market outlook.
- Market Reaction:
- Initial Volatility: S&P 500 rose slightly the week after Election Day.
- Volatility Spike: VIX remained elevated through November.
- December Rally: Markets rallied on optimism about vaccine rollouts and fiscal stimulus.
What to Expect on Election Day
With the potential for delayed results in key states like Pennsylvania and Wisconsin, short-term market volatility may increase. However, historical data shows that markets tend to dip the day after the election but recover by December.
Treasury Bonds as a Key Hedge Today
Investors should consider hedging portfolios with Treasury bonds, especially in a contested election scenario. Bonds historically perform well during periods of uncertainty and can act as a safe haven in a market sell-off sparked by unexpected election outcomes.
In conclusion, investors should remain vigilant and prepared for post-election volatility, especially in the event of a contested outcome. Monitoring market reactions and hedging strategies, such as Treasury bonds, can help navigate potential market turbulence. Remember, staying informed and adaptable is key in uncertain times like these.
As the top investment manager in the world, I am here to provide you with expert insights on how to navigate the potential volatility in the markets surrounding the upcoming election. Brace yourself for turbulence as we approach the close of the polls on Tuesday night, with the possibility of a contested outcome looming large.
Portfolio Moves to Make
Historically, disputed elections have led to market struggles, triggering sell-offs and increased volatility. In such uncertain times, it is crucial to consider making strategic portfolio moves to safeguard your investments. Here are some actionable strategies to protect your portfolio:
- Tighten up stop-loss levels: Set stop-loss levels to current support levels for each position.
- Hedge portfolios: Protect against significant market declines by hedging your positions.
- Take profits: Secure gains in positions that have performed well.
- Sell laggards: Dispose of underperforming positions.
- Raise cash: Rebalance your portfolio by adjusting weightings and increasing cash reserves.
While these strategies may seem simplistic, it is crucial to rebalance risk and stay nimble in the face of uncertainty. Keep your moves conservative for now and adjust as the market reveals its next direction.
Final Thoughts
The outcome of the election, control of the Senate and the House, and the Federal Reserve’s next actions all contribute to the market’s response. While we cannot predict the future, it is essential to remain prepared for various scenarios. Stay agile, hold extra cash, and hedge your positions to weather any storm that may come.
Just like carrying an umbrella before it rains, proactive measures can help you navigate through unpredictable market conditions. Stay informed, stay prepared, and stay ahead of the game.
Remember, uncertainty is a part of investing, but strategic moves can help you minimize risks and maximize opportunities in the ever-changing financial landscape.