Here Comes the Election
Greetings from Harrisburg, Pennsylvania, which seems to be ground zero for the Presidential election candidates’ election campaigns. I’m not here for the campaigns but rather the annual Standardbred Horse auctions. So, I’m doing double-time.
Last week Carly and I were in Orlando, FL for the annual Osaic ConnectED conference, our first such conference with or affiliation with Osaic. Next week, after a brief stop in New Jersey, I am off to South Carolina for client meetings and prospecting.
I titled this commentary Day(s) because there are two important events this week – the National Election and the FOMC rate decision.
Let’s start with the election.
National Election
In case you were hiding in a cave, today is the quadrennial American national elections. It is the political version of the Olympics. By now you likely have voted and suffer from a migraine from the overwhelming election advertising and political commentary (especially if you live in a swing state like we do).
Eight years ago I penned an article for MarketWatch in which I reviewed the eight likely election outcomes. That is the various permutations of Presidential, Senatorial, and House of Representatives outcomes. While the political, economic, and global landscapes are different than eight years ago, we can try to handicap what to expect.
Let me begin by saying that the big money on Wall Street is betting on a Trump victory. Should Trump not win, expect that money to be sucked out of the market. However, the markets prefer split control in Washington whereby one party does not control the White House and both Houses of Congress.
I think that the Presidential election is still a flip of the coin. As I wrote earlier this year, I believe that the Senate flips from Blue to Red. The House of Representatives could flip from Red to Blue, but I see that also as a flip of the coin. Interestingly enough, control of the House may depend on races in California and New York.
What I think is a low-probability outcome is a one-party rule across the board. That aside, the market already bet on Trump to win, so I don’t see a huge market event if that occurs, that is until the FOMC speaks. Should Harris win, there could be a round of profit taking in the range of 5 to 10%. A Democratic sweep has a shot of causing a significant market sell-off and perhaps a bear market, as that outcome will not be seen as corporate or market-friendly. This is a very low-probability event.
Let me state emphatically that it is a fool’s errand to trade ahead of the election. Also, I think that polling is imperfect, biased, and deceptive. Thus, I prefer to react rather than anticipate what election outcomes occur. Lastly, it is possible that we do not have election results until later in the week.
The FOMC
The Federal Open Market Committee (FOMC) will meet on Wednesday and Thursday with their decision to be released at 2 PM Eastern on Thursday. There is no doubt in my mind that the FOMC will drop interest rates again, likely 25 basis points (1/4%). The motivating factor behind their decision is the really poor labor report for October which was released last Friday. Yes, there was the impact of strikes and hurricanes, but that was factored into estimates heading into the release.
Changes to the Dow Jones Industrial Index
As an aside, the Dow Jones Industrials (INDU / DIA) as imperfect as it may be, announced on Friday that it would add Nvidia (NVDA) and Sherwin Williams (SCHW) to the grand old index replacing Intel (INTC) and Dow Inc (DOW), no relation to Dow Jones.
Conclusions
The election is still uncertain. I will likely be up all night as the returns flow in. Recall that in 2016, the market sold off significantly when it appeared that Hillary Clinton was going to win, and then reversed and rallied when we got the news that Donald Trump won. We could have a replay of that in the markets. This is why, again, I prefer to react and not anticipate the election results. No matter what, go out and vote if you have not already done so. Need a ride? Uber Technologies Inc. (UBER) is offering discounted rides to polling areas in select states across the country.
I would hold off on any financing decisions such as auto or home purchase until after the FOMC acts. It is worth noting that over the last few weeks, the bond market has sold off and rates were on the rise, so FOMC cuts could ease that bond sell-off pressure.
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Disclosure: At the time of this commentary Scott Rothbort, his family and/or clients of LakeView Asset Management, LLC were long NVDA, although positions may change at any time. The mention of a stock is not a recommendation and may not be a suitable investment for your individual situation.
Scott Rothbort is the President & Founder of LakeView Asset Management, LLC, (LVAM) an investment advisor representative, specializing in high-net-worth private wealth management. LVAM is a separate entity of Osaic Advisory Services, LLC, a registered investment advisor.
For more information on investing with LakeView Asset Management, LLC call us at 702-749-9343 or request more information by clicking on the contact button on the top right-hand corner of the website or by emailing Scott at scott@lakeviewasset.com or Carly at carly@lakeviewasset.com. LakeView Management, LLC is a Nevada LLC, with its principal office located in Henderson, NV and branch office located in Millburn, NJ
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