What does a “close race” mean?
By Alisa Chatham Sakowitz
In this case, it means that either party had a genuine and significant chance of actually winning. Apparently world markets had once again become quite comfortable with a specific outcome.
While the shock to Democrats last night was palpable, the shock to world markets could be quantified. Index futures – which trade around the clock – topped their Brexit volatility and their post September 11th response last night with declines of nearly 900 points for the Dow. What did we wake up to this morning? Dow futures were still down about 200 points before the US Markets opened today. What do we have as I write this? The Market is up. The Dow is trading up about 140 points.
Market responses seem to mimic this election cycle: full of violent ups and downs. Last night’s futures response was pretty clearly a renewed Brexit fear – traders did not want to get caught twice within a five month time frame by surprise outcomes so they bolted for the exits. This caused significant downdrafts in stocks around the world, oil, the US Dollar and an upswing in Treasury bonds. We are in precisely the opposite position this morning – stocks are up, oil is flat to down slightly and Treasury rates are up this morning, meaning that bond prices are trading down a bit in value.
How do we interpret this? This appears to be no different than most election cycles – there is a knee-jerk reaction to an outcome and then reality settles in as the Markets return focus to normal valuation metrics: prospects for the economy, corporate earnings, inflation, etc.
Nothing has fundamentally changed overnight. The uncertainty of the outcome is now behind us and the job of governing is now on the forefront. While presidents from both sides of the aisle like to claim responsibility for positive market outcomes, capital markets are truly independent and non-partisan. Without dramatic, material interference in those markets, that will not change. Markets will continue to focus on profitability and growth prospects.
Inflation and interest rates can impact profitability and growth prospects. That’s our next big news event as we head into the last months of 2016…what will the Fed do at their December meeting? The market has priced in an increase in the Federal Funds Rate but change and the news cycle are our only true constants!
As always, we maintain our long term, diversified approach to investing. Should you have any questions or concerns, please do not hesitate to be in touch.
May this season be treating you and your families well.
Alisa C. Sakowitz
Park Avenue Securities LLC., Pacific Advisors
20 Bicentennial Circle, Suite 100
Sacramento, CA 95826
P. 916.379.0200 Ext 7241 FAX 916.379.0800
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