The bumper stickers are still on cars, and campaign signs still decorate some of our neighbors’ yards, but it’s already clear that the 2016 presidential election will be discussed and studied for years to come. No matter how you feel about Donald Trump’s win over Hillary Clinton, investors can learn a great deal from the election, especially about how the markets reacted.
Simply put, the election is a great example of how emotions control the markets in the short term.
In the final days of the campaign, you could see the markets pricing in a Clinton presidency. The markets always like certainty and, whether you agree with Clinton’s policies or not, people know who she is and how she would govern. For the last quarter of a century, Clinton has been a familiar figure, and the markets reacted accordingly. The last two days before the election we saw growth in the markets as Clinton was expected to win.
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As results came in on Election Day, you could see the markets react to the increasing possibility of a Trump presidency. After-hours trading started to drop. As it became more evident that Donald Trump was going to win, futures started taking a nose dive. When Trump was announced as the winner and he spoke, the markets started to rebound. The next day, once Wall Street had processed the results and the pundits began to dig into Trump’s actual policies and proposals, the markets garnered some momentum, finishing the day up around 250 points.
The election serves as a classic example of how emotions — euphoria, fear, greed — have the tendency to drive short-term markets. That’s when investors should be careful, as we can trip up over own biases and emotions. We should think about riding out that emotional volatility, which is increasingly hard to do in this age of social media and instant communications. With so many stories out there that can impact our investment strategies, we have to do our diligence on authors and their articles. We have to vet the information we come across and the biases it might contain.
All of us have to remember that investing is usually a long-term proposition and fundamentals will eventually take over. That’s one of the reasons having an experienced, knowledgeable adviser can help. Of course, investors need to trust the advisers they work with to build a proper allocation or offer recommendations. Just like filtering out news stories, investors need to do their research when it comes to advisers and money managers.
When looking for an adviser, investors should consider finding an adviser that can review how volatility can impact their retirement and put together a plan considering asset allocation based on their needs and their situation. The best financial plans are typically built for the long haul. Sure, there might be short-term volatility, but the shrewdest investors known to turn off the noise and keep focused on their long-term plans.
Investing can involve riding an emotional roller coaster. It comes with the territory. But a good adviser can help make sure investors are strapped in tightly with a secure seat belt and a strong harness over their shoulders. Over the long term, with the right adviser and plan in place, investors will be able to survive the ups and downs of the market and emerge stronger than when they started in the markets.
Markets will always cycle, of course, but, in the long haul, investors will typically be fine if they remain aware that fundamentals drive the market – even as we all experience emotional highs and lows with each election and news cycle.
Curt D. Knotick is a financial adviser and chief executive officer at Accurate Solutions Group, LLC, based out of Butler, Pa. He has more than 26 years’ experience in the financial industry. ).
Investment Advisory Services offered through Global Financial Private Capital, an SEC Registered Investment Adviser. ).
Kevin Derby contributed to this article. ).
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