Even more uncertainty was interjected into the US political arena with the Brexit vote. Polls have narrowed between the two major candidates, potentially creating political headwinds for the market in the short-term. In the past, the market has tended to bottom once the outcome of the election appears to be certain. At the moment, a lot of people are dissatisfied with both major candidates. Against that backdrop, there are questions as to who will ultimately be our next president. The markets don’t appear to know, and that uncertainty continues to be reflected.
July has traditionally produced short-term market bottoms in prior election years, irrespective of which candidate eventually wins. Going back as far as the 1950s however, the summer market has been positive overall when we’ve been in the midst of choosing our Commander in Chief. Strength appears regardless of whether the incumbent party wins or loses. While the pullback and subsequent bounce after Brexit may have increased pessimism, it helped drop P/E ratios, which is positive for those who are catching short term waves.
Nothing is ever certain, as you well know. On balance, market data has been positive no matter which party wins in past presidential election years. At the moment, our models are not telling us there is a ton of upside in the market. There is a little bit, but it’s likely in the low single digits, bringing us close to a target of between 3% and 4% at the end of the year. While it would not be prudent to imagine the market will be powering a great deal higher, stranger things have happened.
A September rally is common in election years. From there, the winner dictates the balance of the year’s returns. Rarely do things turn out as bad as we fear or as good as we hope.
We will continue to seek opportunities in unexpected places, and catch the waves that will bring us the best ride. The rest of this year should be interesting, to say the least.
– Greg Stewart, CIO