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Last week, we published some thoughts on the US election results (available here). Since that time, we’ve seen markets generally bounce upwards on the heels of Trump’s unexpected victory, with the Dow Jones even reaching a new record high in the days following the election.
This reaction has confounded many pundits. In the lead up to the election, the prevailing view was that a Trump victory would be negative for markets. This immediate downside scenario did not occur and for now analysts are pointing to the bullish aspects of Trump’s economic plans (e.g. the potential economic boost from his proposed tax cuts and increased infrastructures spending) as the underlying driver behind the shift in market sentiment.
So what to make of all this shifting market commentary? Our view is that it’s best to ignore the pundits for now, as near-term market volatility is likely to make it hard to assess how long (or if) the market’s positive response will last. The impact of a Trump Presidency will remain on Six Park’s “Watch List” as we assess the election fallout.
Here are two relevant investment themes from previous Six Park blog posts:
1. Financial markets generally do not like uncertainty
Even though Trump was not expected to win, the election uncertainty is now behind us. It is not uncommon that when such uncertainly clears, investors re-enter the markets, even if the initial reaction is a precipitous drop (see: Brexit) before the buyers eventually re-emerge.
2. Patience is a virtue during periods of short-term volatility
Markets don’t always follow an expected script over the short term. They can sometimes move in erratic and unpredictable ways that catch even expert observers off-guard. This unpredictability is one of the main reasons why it is so difficult to “time the market” when investing and why so many studies have shown it's a sub-optimal way to invest your money over the long term (read more about this here).
This is why we focus heavily on keeping costs low, offering portfolios which are tailored to match our clients’ risk appetites and why we encourage our clients to maintain a diversified, long-term outlook and avoid emotion-driven, reactionary investment decisions.