Today the half-million Oregon individuals who evacuated their homes, the thousands whose homes, farms, or businesses are in ashes, and the unbearable story of the Tofte family and the others who lost their lives are quite literally in our prayers.
He raises the poor from the dust and the needy from the ash heap… Psalm 113
Typically we try to provide hopeful, helpful commentary when the financial markets are in ashes, but even after the pullback suffered last week, the smoke is gone and the skies are blue for stocks since the COVID lows of late March.
Although we feel the stock market got ahead of itself on the rebound, it appears to be correcting what’s being called the “raging mania” and we think volatility will settle down after the election. Yes, even if there’s a blue wave.
In an article Forbes wrote yesterday, they rank the following scenarios for the stock market after the election:
1. Biden wins, Republicans hold the Senate – This means gridlock and nothing gets done, markets love this.
2. Status Quo – Initial jump, Trump continues striving for lower taxes and deregulation but stuck with an unpredictable negotiating style.
3. Blue wave – Initial drop, recovery in December, and the following year as history has shown.
4. Disputed Election – Uncertainty upon uncertainty is bad for markets.
A Barron’s article had these insights:
- RealClear Politics average of opinion polls shows Biden’s lead narrowing to 7.5% now. Although we’re all a little skeptical of polls after the last election.
- The 10 close elections in the post-World War II era have seen selloffs in the six to seven weeks before the election as uncertainty grows.
- No clear winner may emerge on the night of Nov. 3 or even early the next morning, given the extra time to count and the potential for debated results of the mail-in ballots.
- A contested election would likely send stocks lower. The hanging chads on Florida ballots in 2000, which ultimately had to be decided by the Supreme Court in Bush v. Gore December 12th, 2000, trimmed 7% from the S&P 500 index.
- Maybe a more dramatic response if an uncertain election outcome sparks civil unrest. Extreme polarization and high unemployment is increasing tensions.
- The Deutsche Bank strategists find close elections have been followed by strong rallies averaging 5%, regardless of which party wins, as hedges against political risk are closed out.
So what should we make of this? Great question. Guessing the direction of the stock market over the next 2 months, or 2 years, is not our game. We instead like to take a more measured approach. This means small changes to portfolios based on time horizon, risk tolerance, and of course, the levels of the stock market.
For our client accounts, we’re finished locking in gains and are now looking to reinvest those gains should we get opportunities. The pullback has pushed the S&P 500 down approximately 7% from the high it reached early this month.
If the drop continues, we’ll be looking to invest again for everyone with the hope that the passing of the election, progress on COVID-19, and the end to this tumultuous year will settle things down.
Thank you for reading,
– Bruce Porter & Tim Porter, CFP®
PS – We wanted to make sure to say thank you to all who participated in, or who gave their lives nineteen years ago today to save those in the 9/11 attacks!
