Since our July blog we have been cautious on the market. The market has moved down about 3-4% since the end of July. The elections have everyone spooked. The markets hate uncertainty. The Trump presidency is perceived as such uncertainty, whereas a Clinton presidency is seen as the devil you know. Here is the secret: the Fed is in charge and not a President or a Presidential election. An election’s effect on the markets is only in the short term. There are only two Presidents that we are aware of, that have affected our GDP due to their policies; but that is for another discussion.
If Donald wins, the markets expect a sell off, and if Hillary wins a mild positive reaction is expected. Of course, these are very short term, knee jerk reactions. While this might seem concerning, we would get ready to buy on a significant move to downside. Here’s why: market valuations have gone from expensive to fairly valued, so we believe that any sharp selloff would be a good time to add to positions.
Here are some good reasons:
- ISM and PMI have been positive
- Rates are staying low ( range of 1.9-2% 10yr is still low, currently 1.83)
- Demographics will start turning to consumption within a few years as millennials and echo boom kids begin buying stuff
- There is a lot of cash on the sideline
We are not saying buy today. We are saying that if there is a big sell off, it would present a more reasonable entry point. We are currently at 15.8 times 2017 earnings.
Good luck, call us with questions.
