PEEK OF THE WEEK
November 8, 2016
Leif Hagen & Donna Roberts
The Markets
Markets hate
uncertainty – and that may create opportunities.
Last week, investors experienced another bout
of election jitters, and the Standard & Poor’s 500 (S&P 500) Index fell
for the ninth straight session.
The CBOE Volatility Index (VIX), a.k.a. the
fear gauge, which measures the expected volatility of the S&P 500 during
the next 30 days, was up more than 40 percent for the week. The shift in the
VIX reflected investors’ concerns about stock market performance after the
election. Many think the next four weeks will offer a rough ride.
That may prove to be the case; however, all of the
election hoopla and hyperbole has obscured some positive news. So far, the
third quarter earnings season has been going well. According to FactSet, 85 percent of companies in the
S&P 500 Index have reported earnings and the blended earnings growth rate
for the Index is 2.7 percent. That means the S&P 500 Index is on track to
experience its first quarter of earnings growth after five quarters of falling
earnings.
A savvy portfolio manager or investor might wonder
whether any of the companies with improving earnings have seen their share
values decline because of election volatility and take time to evaluate whether
any of those companies have become more attractive investments as a result.
If you’re too worried about the future of America to think
about investment opportunities, it may help to remember the President of the
United States doesn’t govern alone. An expert cited by Barron’s offered this insight:
“Regardless of who wins the White House…the
new president will probably be playing between “the 40-yard lines” of the
political gridiron against a Congress with at least one chamber controlled by
the opposition. If both houses are held by the opposing party, the action
probably could be stymied between “the 47-yard lines” – likely beyond even
field-goal range to score any policy points.”
No matter how moving the election rhetoric,
the next President may have a hard time getting much done.
Data as of 11/4/16
|
1-Week
|
Y-T-D
|
1-Year
|
3-Year
|
5-Year
|
10-Year
|
Standard & Poor's 500
(Domestic Stocks)
|
-1.9%
|
2.0%
|
-0.8%
|
5.7%
|
10.7%
|
4.2%
|
Dow Jones Global ex-U.S.
|
-1.8
|
0.3
|
-3.4
|
-3.5
|
1.6
|
-0.9
|
10-year Treasury Note (Yield
Only)
|
1.8
|
NA
|
2.2
|
2.6
|
2.1
|
4.7
|
Gold (per ounce)
|
2.3
|
22.7
|
16.9
|
-0.5
|
-5.7
|
7.6
|
Bloomberg Commodity Index
|
-3.1
|
6.0
|
-3.7
|
-12.2
|
-11.0
|
-6.9
|
DJ Equity All REIT Total
Return Index
|
-2.2
|
2.9
|
3.2
|
8.8
|
11.1
|
5.1
|
S&P 500, Dow Jones Global ex-US, Gold, Bloomberg
Commodity Index returns exclude reinvested dividends (gold does not pay a
dividend) and the three-, five-, and 10-year returns are annualized; the DJ
Equity All REIT Total Return Index does include reinvested dividends and the
three-, five-, and 10-year returns are annualized; and the 10-year Treasury
Note is simply the yield at the close of the day on each of the historical time
periods.
Sources: Yahoo! Finance, Barron’s, djindexes.com,
London Bullion Market Association.
Past performance is no guarantee of future results.
Indices are unmanaged and cannot be invested into directly. N/A means not
applicable.
will the u.s. presidential
election move the stock market? Elections often produce market
volatility because markets hate uncertainty, and there is nothing certain about
the outcome of the U.S. election. Election-induced volatility, however, often
is relatively short-lived.
Remember,
the downturn that followed the British vote to leave the European Union?
Globally, markets lost about $3 trillion in two days following the late June
vote. By the Fourth of July, many markets had recovered lost ground and made
new gains, according to Financial Times.
So,
what may happen after U.S. elections? Here are some thoughts:
“In
the event of a very narrow Clinton win, it is all but guaranteed that Trump
would claim the election had been “rigged” and would challenge the result via
the courts. Civil disorder is also possible. Under those circumstances, the
infamous 2000 election suggests that the uncertainty could persist for at least
a month and could weigh heavily on the stock market during that time. It was
not until December 12, more than a month after polling day, that a Supreme
Court ruling effectively handed the 2000 election to George W. Bush.”
--Paul
Ashworth, Capital Economics, cited by Barron’s
“After the silly season is over on
November 8, about half the country will be elated and nearly half will be
scared. And, both groups, research shows, are likely to tweak their investments
accordingly. That’s when things really get risky. The key to your success this
year is understanding that your emotional reaction to the election – not who
actually wins it – is what truly matters.”
--Taylor Teppler, Time.com/Money
“Successful investors understand
that markets are always moving, and there’s really no way to avoid the
volatility that can come from uncertainty – even when it’s caused by a
contentious political campaign. The trick is to create a portfolio that
includes a diverse mix of assets and is based on your investing time frame and
risk tolerance.”
--Schwab
Survey: Investors Who Plan Don’t Fear Election Volatility
Markets may get bouncy following
the election. That doesn’t change your long-term financial goals. If a
portfolio review would help settle your election jitters, you may want to
contact your financial professional.
Weekly Focus – Think About It
“The thing about democracy,
beloveds, is that it is not neat, orderly, or quiet. It requires a certain
relish for confusion.”
--Molly Ivins, American newspaper columnist
Warm regards from Eagan,
Leif M. Hagen
Leif M. Hagen, CLU, ChFC
LP Financial Advisor
Securities offered through LPL Financial Inc., Member FINRA/SIPC.
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* This newsletter was prepared
by Peak Advisor Alliance. Peak Advisor Alliance is not affiliated with the
named broker/dealer.
* The Standard & Poor's
500 (S&P 500) is an unmanaged group of securities considered to be
representative of the stock
market in general. You cannot invest directly in this index.
* The Standard & Poor’s
500 (S&P 500) is an unmanaged index. Unmanaged index returns do not reflect
fees,
expenses, or sales charges.
Index performance is not indicative of the performance of any investment.
* The 10-year Treasury Note
represents debt owed by the United States Treasury to the public. Since the
U.S.
Government is seen as a
risk-free borrower, investors use the 10-year Treasury Note as a benchmark for
the long-term bond market.
* Gold represents the
afternoon gold price as reported by the London Bullion Market Association.
The gold price is set twice
daily by the London Gold Fixing Company at 10:30 and 15:00 and is expressed in
U.S. dollars per fine troy ounce.
* The Bloomberg Commodity
Index is designed to be a highly liquid and diversified benchmark for the
commodity futures market. The Index is composed of futures contracts on 19
physical commodities and was launched on July 14, 1998.
* The DJ Equity All REIT
Total Return Index measures the total return performance of the equity
subcategory of the Real Estate Investment Trust (REIT) industry as calculated
by Dow Jones.
* Yahoo! Finance is the
source for any reference to the performance of an index between two specific
periods.
* Opinions expressed are
subject to change without notice and are not intended as investment advice or
to predict future performance.
* Economic forecasts set
forth may not develop as predicted and there can be no guarantee that
strategies promoted will be successful.
* Past performance does not
guarantee future results. Investing involves risk, including loss of principal.
* You cannot invest directly
in an index.
* Consult your financial
professional before making any investment decision.
* Stock investing involves
risk including loss of principal.
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Sources:
http://www.barrons.com/articles/trades-big-role-in-the-presidential-election-1478322668?mod=BOL_hp_we_columns (or go to https://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/11-07-16_Barrons-Trades_Big_Role_in_the_Presidential_Election-Footnote_4.pdf)
https://www.ft.com/content/24124fe0-3d2e-11e6-9f2c-36b487ebd80a (or go to https://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/11-07-16_FinancialTimes-How_Long_Does_the_Post-Brexit_Markets_Bounce_Last-Footnote_5.pdf)
https://www.ft.com/content/aa096aa6-7449-32d0-9673-3718b6d439b5 (or go to https://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/11-07-16_FinancialTimes-Stock_Markets_Continue_Post-Brexit_Recovery-Footnote_6.pdf)
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