Next month, Americans will head to the polls to elect the next president of the United States.
While the outcome is unknown, one thing is for certain: There will be a steady stream of opinions from pundits and prognosticators about how the election will impact the stock market. As we explain below, investors would be well‑served to avoid the temptation to make significant changes to a long‑term investment plan based upon these sorts of predictions.
SHORT-TERM TRADING AND PRESIDENTIAL ELECTION RESULTS
Trying to outguess the market is often a losing game. Current market prices offer an up-to-the-minute snapshot of the aggregate expectations of market participants. This includes expectations about the outcome and impact of elections. While unanticipated future events—surprises relative to those expectations—may trigger price changes in the future, the nature of these surprises cannot be known by investors today. As a result, it is difficult, if not impossible, to systematically benefit from trying to identify mispriced securities. This suggests it is unlikely that investors can gain an edge by attempting to predict what will happen to the stock market after a presidential election.
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Global equity markets advanced in August with a 0.32% aggregate return. Emerging markets (+2.02%) outperformed US markets (+0.24%) and Developed (ex US) markets (‐0.05%).
In the US, small cap (+1.52%) outperformed mid cap (+0.18%) and large cap (+0.08%). Among price‐to‐book asset classes, value (+1.68%) beat neutral (‐0.05%) and growth (‐1.02%). Financials (+5.66%) posted the largest return and made the largest contribution. Utilities (‐5.61%) fell the most and Health Care (‐3.20%) was the largest detractor for the month.
In Developed (ex US) markets, mid cap (+0.04%) outperformed large cap (‐0.07%) and small cap (‐0.09%) while value (+2.49%) beat neutral (‐0.53%) and growth (‐2.23%). Financials (+3.06%) gained the most and was the top contributor. Health Care (‐5.49%) declined the most and was the largest detractor. Among the twenty‐two Developed (ex US) countries, Ireland (+5.68%) experienced the largest gain while Germany (+1.81%) made the largest contribution. Denmark (‐4.71%) had the lowest return, and Australia (‐2.47%) was the largest detractor.
In Emerging markets, large cap (+2.48%) outperformed small cap (+1.19%) and mid cap (+0.76%). Among price‐to‐book asset classes, value (+2.96%) beat growth (+1.94%) and neutral (+1.30%). Of the eleven industry sectors, Financials (+4.29%) posted the largest gain and contributed the most. REITs (‐4.57%) had the lowest return and Telecommunication Services (‐1.62%) was the largest detractor. Across Emerging market countries, Colombia (+9.86%) provided the largest return while China (+6.56%) contributed the most. Czech Republic (‐8.78%) declined the most and South Africa (‐7.45%) was the largest detractor.
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The US mutual fund industry comprises a large universe of funds covering securities markets around the world. These funds reflect diverse philosophies and approaches. How has the industry performed as a whole? What should investors think about when selecting funds? Research provides insight.
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Many investors look to gross domestic product (GDP) as an indicator of future equity returns. According to the advance GDP estimate released by the Bureau of Economic Analysis (BEA) on April 28, annualized real US GDP growth was 0.5% in the first quarter of 2016 — below the historical average of 3.2%. This might prompt some investors to ask whether below-average quarterly GDP growth has implications for their portfolios.
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