As election results were coming in on Tuesday, November 8, stock market futures were pointing toward a large decline once the market opened on Wednesday morning. Markets tend to dislike unexpected change. That night, as it grew clearer that we would have a shift in the political party of the presidency, market futures attempted to price that change in until ultimately opening up instead of down and closing at a record high on Thursday—despite what many “experts” were predicting.
We have seen a series of predictive failures this year, from the doom saying at the beginning of the year (“Sell everything!”) to the failure of a peace referendum in Colombia to Brexit. The Brexit vote is a great example of why elections are bad predictors of market and economic performance. After an initial downturn, global markets recovered once the shock subsided. In fact, the British market is even in positive territory these days.
Why? Because markets are not about politics or policy, or even the economy. Markets represent the major companies of the world, all of which have a vested interest in efficiently and profitably producing the goods and services we need.
It is good to remember that we don’t stop buying toothpaste because of a down market or because of the person in the Oval Office. We don’t stop watching TV or driving to work or going grocery shopping — which means that the great companies that make all these things should continue to grow and prosper over the long term.
The future, as always, is unknowable. But a portfolio built for the long-term is just as valid today as it was yesterday. As an investor, if you can avoid trying to time the market, resist the impulses of emotions and hold a globally diversified asset class portfolio, you can enjoy a higher probability of achieving your goals.
I hope this helps lend some perspective. Please reach out to me if you have any questions or want to discuss this further.
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