Mailboxes are stuffed with fliers, political commercials are dominating the airways, and early voting lines are long. These are just some of the signs we’re seeing that the election is right around the corner. As is typical of a presidential election year, there is an undercurrent of curiosity and concern about the near-term fate of the market and its response. In fact, the level of curiosity and concern is much higher now than in the early days of the pandemic in March and April. With the S&P 500 at a near all-time high, it might seem surprising that worry is so great; however, we’re quickly reminded by the news and social media channels about a number of uncertainties that are driving this concern: 1) The possibility of a contested election, 2) No stimulus package until after the election, 3) Fears of resurging COVID-19, and 4) Social Unrest.
So, here is the question of the day: Will the market collapse with a contested election?
The market doesn’t like uncertainty, and IF there is a contested election, the longer it remains unresolved, the higher the angst and emotional charge from all forms of media. However, to step back and view the financial markets, I believe there are some certainties that are firm through the election – the Fed supporting liquidity and precedent of cooperation established from the past two recessions.
I believe the biggest stabilizing factor is the Federal Reserve’s apparent commitment to do whatever is necessary to support the economy. And, for the market, that likely means an unlimited firehose of liquidity. That doesn’t mean the market cannot have a bout of high volatility, but I think it does mean that the Fed will supply enough liquidity for the markets to process any volatility in a normal manner.
The follow-up question we get on the election is, “What will the market do if X or Y wins?” If we look to the significant precedent established from the past two recessions, we see that economic realities forced cooperation among the two parties together with a focus of repairing the economy and getting back to full employment.
For our investors, we’ve recently made adjustments to portfolio allocations to better absorb market shocks and we will continue to monitor market risk and adjust as appropriate. For our financially conservative leaning investors, we want you to know that lowering volatility and preserving your capital during high risk markets is our number one priority, so please don’t let the financial markets take a toll on your emotional wellbeing—we’re watching out for you. If you’re aggressive, our goal is to make volatility your friend.
Please let us know if you have any questions. We thank you for your trust!
The Trademark Capital® Team
This material is intended for informational purposes only and should not be construed as legal, accounting, tax, investment, or other professional advice. Trademark Capital’s investment strategies are built using quantitative, proprietary algorithms that are designed to identify and react to changing market conditions. However, investors should be aware that no investment strategy or risk management technique can guarantee returns or eliminate risk in any given market environment. As with all investments, Trademark Capital Management’s investment strategies are subject to risk and may lose money. The investment strategies presented are not appropriate for every investor and individual clients should review with their financial advisors the terms and conditions and risk involved with specific products or services. Due to our active risk management, our managed portfolios may underperform during bull markets. Past performance is no guarantee of future results.