Sarah J from Minneapolis, MN asks: Mitch, with the upcoming elections it feels like there is a lot of uncertainty over the outcome and the direction of the country. Are there portfolio preparations I should make in advance of the election just in case?
Your question is understandable, and I can say from experience that you’re not alone in feeling this way—a lot of clients have expressed similar sentiments. I won’t opine on either of the candidates or try to predict the outcome, there’s still too much time between now and November for things to shake out. But this is also one of the reasons I think you should hold-off on any portfolio adjustments, and stay cool for now.
There’s another reason too. Election years (like 2016) are almost always positive ones for stocks! Since 1928, the market has only been down four times in an election year: -8.2% in the 1932 Roosevelt v. Hoover race, -9.8% in 1940’s Roosevelt v. Willkie, -9.1% in 2000’s Bush v. Gore, and -37% in 2008’s Obama v. McCain contest (According to Federal Investors research). This means that the market has only been down in 4 of 22 election years since 1928, or less than 20% of the time. With earnings set to quietly rebound in the last two quarters of this year and low interest rates essentially forcing investors into risk assets, I think 2016 will add to the trend of positive election year outcomes.
Once the election is decided, we’ll have some time to assess the policy agenda of the winning candidate and to analyze how we think that might affect certain categories of stocks. But for now, I think the right move is to hold tight.
That being said, you should not hold tight if your portfolio isn’t optimally diversified! When was the last time you checked to see if your portfolio is not only aligned with your risk tolerance and investment objectives, but also with a market outlook you’re confident is accurate? At Zacks Investment Management, we can address all of these issues with a simple call. We can take a look at your current portfolio allocation and discuss with you what adjustments we think make sense in the current environment. To get started, you can download our Stock Market Outlook for free or just give us a call to request a copy. We’d be happy to help.
Disclosure