While the election will (hopefully!) be over when the last polling station closes, it will only represent the beginning of the 4-year term of the next president. Whoever it is will be revered by a small percentage of the electorate, “hated” by another small percentage of the electorate and prayed for by a large percentage of the electorate.
As we have expressed in recent missives, our view is that the market will ultimately head higher following the swearing in of the new president, regardless of who that person is. We continue to hold this view despite the tensions surrounding the campaigns and the stark contrast between the two candidates.
In the short-term, however, we expect volatility. It will not surprise us to see stocks rally following the election. But, if stocks do rally we will remain on the look-out for a reversal. This means we are unlikely to “chase” the rally by buying stocks with the substantial cash reserve we have raised in our managed accounts. If, on the other hand, we see a substantial (negative 5-8%) decline in stocks it is likely we will “pull the trigger” and buy a few stocks that we have identified as attractive at a lower price. If stocks hold steady following the election, we are likely to remain cautious.
On Monday, we saw stocks rally hard in what might be a hint of what is coming. This would follow the market axiom which goes, “Sell the rumor, buy the news.” Leading up to yesterday, stocks were lower for 9 straight days. Per Howard Silverblatt, senior index analyst at S&P Dow Jones Indices, there were only 14 instances of 9-day losing streaks since 1928. Further analysis, conducted by Ryan Detrick, senior market strategist at LPL Financial, shows that stocks rose over the next 12 months 76% of the time, with an average return of 14%. This statistic augers well for owning stocks over the longer term.
We are focusing our attention on health care, industrial and energy stocks. These sectors of the market have been hit particularly hard of late and offer many attractive investing opportunities in our view. Consumer-oriented stocks, we feel, should be avoided along with utilities.
So, the long wait is almost over but we believe the most important span for stocks is just beginning. There are many more reasons to be optimistic about owning high-quality stocks than there are reasons to be pessimistic.
Regardless of whether your candidate wins the election, take comfort in the fact that you live in the greatest nation on earth. This did not happen by accident. It happened because its citizens care. And, because they care, the process of electing their president is exhausting. It is exhausting because it matters. It matters because of what we have accomplished as a nation over more than 200 years. Neither of these candidates will derail what those that have come before have accomplished.
I would also like to draw attention to another day that brings all of us together this time of year. On November 11, thank a veteran. When they signed up to serve they wrote a check to this nation for an amount up to and including their life. If you are a veteran, as I am, thank a citizen. They offer their prayers, support and gratitude for what you have done every day. God Bless America.
Craig Kessler, Chief Investment Officer