We had more questions from clients about the merits of reducing their stock exposure leading up to this election than during any other time we can recall. Given the circumstances of this campaign and the many shocks of 2020, the urge to “act” is strong. In our September 15 blog Election Outlook we wrote that “Timing the market is not an investment strategy, it’s a binary bet that more often than not loses (no less so during an election).”
The S&P 500 Index closed at 3384 on September 14, the day before we published the blog. As of this writing, the index stands at 3562, or 5.3% higher. The path higher was not a straight line, but then it never is. In the last month and a half, capital markets have had to absorb many data points, some good and some bad: the global rise of COVID cases, a third-round fiscal stimulus stalemate between House Democrats and the Trump administration, improving corporate earnings, a close and briefly uncertain election, continued consumer spending strength, and most recently a significant vaccine development. The lesson: stocks can rise even during highly uncertain times.
Where does that leave us now? A common adage is that stocks can handle good news and bad news, but they struggle with uncertainty. As well, the prospect of divided government often suggests policy stability, which is helpful to businesses and their customers. We believe that having moved through the uncertain period leading up to this election combined with the prospect of policy stability – and setting both against the backdrop of low interest rates and stimulus – bode well for stocks. Investing in well-run, innovative companies is a strategy that works, and we are constructive on stock prices going forward. The one thing we can promise though is that the path over time will not be a straight line higher. Uncertainty and volatility are always part of investing in stocks. What this most recent period again reinforces is that discipline and consistent strategy works even when market timing impulses are powerful.
Past performance is no guarantee of future results. Investing involves risk, including possible loss of principal. Diversification may not protect against market risk or loss of principal. The opinions expressed above should be construed as neither investment advice nor a solicitation to buy or sell securities. Actual investor results may vary.
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