Market Updates

Market Expectations – Election Response [VIDEO]

Chief Portfolio Strategist Nick Lacy comments on the results of the election and its possible effects on the markets.

November 10, 2016

Recorded November 10, 2016

What can we expect from the markets based on the election?

Part I Transcript: Hi, I’m Nick Lacy, Chief Portfolio Strategist with Asset Management Services here at Raymond James. I’m here to address a couple of questions that I’ve been getting asked recently about the most recent elections here in the U.S.

First, what are the implications on the markets for a Trump presidency and a Republican-controlled Congress? While it’s difficult to say with any degree of certainty what the markets will do, what we can do is address what had happened the 24 hours after the elections and why potentially that might be more of the same going forward.

If we look at which markets performed well and which markets did not perform well, I think we can get a good answer to that question of what is the market’s expectations. For example, the markets that tended to do the best were here in the U.S. – the small cap markets. Specifically, smaller companies whose earnings are maybe less reliant on global trade or outside U.S. type of businesses. Markets that were the most impacted negatively were emerging markets, and emerging markets for the same reason. If we think about what a Trump candidacy leading into a Trump presidency means, we can look at some of the statements about policy that could potentially be enacted on global trade; potentially things such as immigration, stimulus spending, other areas. In addition to that, there have been a lot of discussions on decreased regulations or potentially the deceleration of an increase in regulations. If we think about sectors around the economy here in the U.S. that did well during the 24 hours after election, financials and healthcare were two sectors that did exceptionally well. We could come up to the conclusion that it was based on a lack of potential new regulation or potentially a decrease in regulation allowing financial institutions and healthcare-based companies to see higher earnings in the future.

Other markets that we saw impacted, bond markets saw some implications after the elections. We saw interest rates on bond yields around the world rise a little. In the U.S. the tenure Treasury bond rates went up about 26 basis points or about a quarter of one percent. This could be due to the thought that we might see an increase or a slight increase in inflation in the near future as stimulus spending, and less regulation could lead to higher levels of growth and higher levels of inflation. We also saw the exchange markets for currencies be impacted as the U.S dollar strengthened against some of the major currencies around the world, such as the Japanese Yen and the Euro. On the other hand, we might see an increase in interest rates in December, and with a rise in the 10 year interest rate, this could lead the Federal Reserve a little more room to raise rates in December.

What I would point back to is the fact that it’s very difficult to point to something and say, “Here’s what’s going to happen.” We can look at what has happened most recently and try to deduce what the markets interpretation of what should happen going forward.

Part II Transcript: Another popular question that I’ve been getting asked a lot is what should investors be doing differently today based on the election results?

I’d be hard-pressed to tell anybody that they should change their investment objectives based simply on elections. Investors’ objectives really should be based around what is their goal and how comfortable are they with the amount of risk they’re taking in their current policy or their current investments. This is usually determined by how much equity or stocks does one own, and how are you balancing out the risks that comes with those equities over time with things such as fixed income or other types of investments. Over time, it does become necessary to either increase or decrease one’s exposure to these different investments, but it’s really based on long-term fundamentals and what the market is presenting us when it comes to valuations, earnings, interest rates, and other factors.

Today, at Raymond James we are slightly underweight in our recommendation to equities, but this isn’t based on what may or may not happen from the elections. It’s simply based on where earnings have been most recently, where they have been trending (which up until this last quarter had been down), and where the risk in equities lie. If earnings continue to improve, as we have seen them improve recently, and if we continue to see improvements in the economy, which has also been improving, we will most likely be taking that underweight in equity off and go back to a neutral weight in equity. In addition to that, we have been recommending that investors own things like investment grade bonds and other instruments to help them in their portfolios’ ability to manage risks. Most of the risk in a portfolio comes from how much equity one owns. You will typically see these things change over time, but not based on elections. As I said earlier, it’s really based on where the fundamentals are heading and what risks investors are taking in achieving their goals.

This was recorded on November 10, 2016. All expressions of opinion reflect the judgement of Raymond James and are subject to change. Past performance may not be indicative of future results. There is no assurance any of the trends mentioned will continue or any forecasts will occur. Investing involves risks including the possible loss of capital. Diversification and asset allocation do not ensure a profit or protect against a loss.

The information contained in this report not puport to be a complete description of the securities, markets, or developments referred to in this material, is not a complete summary or statement of all available data necessary for making an investment decision, and does not constitute a recommendation.

©2016 Raymond James & Associates, Inc., member New York Stock Exchange/SIPC.
©2016 Raymond James Financial Services, Inc., member FINRA/SIPC.
Investment products are: not deposits, not FDIC/NCUA insured, not insured by any government agency, not bank guaranteed, subject to risk and may lose value.

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