The markets are frothy due to the uncertainty of this election. As investors, should we fear the outcome? Hello, my name’s Paul Carroll. I’m the CEO and founder of Efficient Wealth Management, a boutique wealth management firm based here in The Woodlands, Texas.
Let’s face it. It’s been a remarkable election. It’s turned the parties and their policies upside down. Almost no analytical discussions of the forward-facing issues in our country have occurred on either side of the debate. Partisanship has been exacerbated by social media algorithms and uncertainties in Middle America. What, as investors, should we be doing about this?
First, let’s talk about the outcome that’s priced in. Like it or not, we’re looking at about 3 to 2 odds favoring Clinton. As we know from Brexit, with similar odds, odds do not make an outcome. Although as those odds have fallen, so has the market.
Second, the VIX, which is the volatility index for the S&P 500, clearly is signaling a market preference for more of the same that a Clinton victory would represent over the significant uncertainties encapsulated in a Trump election.
Third, as all of this is priced in quite efficiently, there’s no good proactive play other than to straddle the election if you’re buying or selling a large position.
What’s going to happen after the election? It’s safe to say, depending on the outcome, that the market will either react positively, albeit mildly, or sharply negatively. An initial sharp negative reaction will almost certainly be a short-term overreaction and therefore a wonderful rebalancing opportunity. We’ll be standing by with our finger on the trigger to react appropriately.
On a more philosophical note, though, regardless of your political leanings, we have enduring institutions and two fairly geriatric candidates. Your worst fears or maybe best hopes will likely not come to pass. The next presidential election should be far more interesting. We wish you the best of investing success.
