Preparing clients for
post-election investing

Addressing common questions in an unprecedented election year

Though the election season has drawn to a close, investor concerns haven’t vanished. These shareable resources look to equip financial professionals with the tools they need to tackle investors’
leading questions.

Could market volatility linger after Election Day?

Worries around volatility are on the minds of many investors. 76% respondents to BlackRock’s latest Investor Pulse survey believe that today’s messy political landscape is driving financial market volatility. Worries extend beyond the Presidential election; 71% of respondents believe that volatility will continue to drift higher even after November 8th.

These worries aren’t misplaced. As the chart below shows, equity volatility has historically risen in the days leading up to the election, and has often continued to rise in the first 60 days of the Presidential term.

Market volatility has historically drifted higher as the election draws near
Equity volatility around U.S. elections, 1992-2016

Equity volatility around U.S. elections, 1992-2016

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While markets typically respond more significantly to fundamental factors outside the realm of politics – chiefly economics and earnings – we believe this election year may see a similar trend. Volatility is likely to rise, particularly given its abnormally low starting point.

So what do I do with my money?

Volatility can rattle even the most confident investors. But while ups and downs are a fixture of investing in any environment, their severity can potentially be blunted. High-quality bonds, gold and – for the many investors who require stock market exposure to generate investment growth – minimum volatility equity strategies may help mute the impact of market swings.


Which party is better for the
stock market?

Many myths surround the connection between the party in the White House and the performance of equity markets. One commonly held one: Democratic administrations tend to see stronger equity performance. Respondents to our latest Investor Pulse survey appear to share this view. While 37% believe that a Clinton presidency will lead to stronger equity performance, only 28% of respondents believe that a Trump presidency will see stronger equity returns.

The chart below shows average annual stock market returns under Democratic and Republican administrations, findings that appear to suggest that there is some wisdom in investors’ beliefs. There is more to the story, though.

Neither party holds a monopoly on higher market returns
Average annual returns under Democratic and Republican administrations (1900-2015)

Average annual returns under Democratic and Republican administrations (1900-2015)

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Since 1900, Democratic administrations have coincided with slightly higher returns on U.S. stocks. However, this difference is dwarfed by the normal variation in annual equity market returns. This suggests that chance alone, rather than shrewd policy choices or financial market wizardry, is the likely explanation for this discrepancy.

So what do I do with my money?

Government policy can no doubt influence the performance of the economy and financial markets. However, the impacts are often nuanced, playing out at the sector or individual stock level. Investors may want to think twice about making big shifts in their portfolio in anticipation or as a result of a specific election outcome.

 


Should I move to cash amid
market uncertainty?

This election cycle has left investors on edge. 75% of respondents to BlackRock’s latest Investor Pulse survey believe the 2016 election will be more consequential to their personal finances than the 2008 election – one which took place in the midst of the largest market crisis since the Great Depression. Amid this uncertainty, twice the number of respondents are increasing their cash position compared with those reducing it. For anxious investors, it is important to remember that financial markets have weathered many storms.

The stock market has risen through many administrations and crises alike
Standard & Poor’s composite stock price index over time, 1900–2015

Standard & Poor’s composite stock price index over time, 1900–2015

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Neither the Great Depression, Great Recession, two world wars, nor political crises of all types have long detained the stock market’s upward climb. Over time, one truism has held constant: markets are resilient. In fact, fleeing to cash can leave investors missing out on some of the best performing days—something that can carry significant consequences.

So what do I do with my money?

For investors, seeking to anticipate or time political developments within their portfolio is a fool’s errand. As this election cycle has poignantly illustrated, few things are less predictable than politics. Patience, diversification and long-term perspective remain the most potent tools in an investor’s arsenal. Further, investors may want to consider alternatives to cash that can offer a similar reduction in portfolio volatility, while providing greater income potential.


Is my wealth under threat?

Wealth inequality has been a key theme this election cycle, one influencing the tone and platforms of both major party candidates. The Democratic Party, in particular, has put forth proposals that, if enacted in full, would increase tax liabilities for high earners and some investors. In fact, among self-identified Republicans surveyed in our latest Investor Pulse findings, 60% believe their financial situation will be directly threatened by a Clinton presidency. Nearly half of Democrats hold the same fears surrounding a Trump presidency.

It is important for investors to recognize that political compromise will likely temper the most radical proposals of either party.

While Democrats may take the Senate, control of the House of Representatives looks less likely to flip

While Democrats may take the Senate, control of the House of Representatives looks less likely to flip

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As the chart above shows, Republican look poised to maintain a sizeable lead in the House of Representatives. Even with a Democratic sweep of the House, Senate and White House, procedural roadblocks still restrain major policy excesses. Corporate tax reform seems a more likely area for bipartisan compromise, leaving potentially more painful decisions around individual tax reform off the table.

So what do I do with my money?

Highly tax-conscious investors concerned about a potentially rising tax bill may look to consider more tax efficient ways to gain income or equity market exposure.

Exchange Traded Funds: In a low return environment, every dollar counts. iShares ETFs have a 15-year track record of providing tax-efficient ETFs. Last year, 93% of our funds did not pay capital gains distributions.


Points for professionals

  • Help clients maintain a long-term perspective as the election draws near.
  • Avoiding big shifts in portfolios is prudent, but there are tools to tap that may help clients more comfortably navigate volatile times.
  • Consider tax-efficient ways to generate growth and income within portfolios.
  • Contact your BlackRock representative.
Investing amid election uncertainty
U.S. ELECTION IMPLICATIONS
Investing amid election uncertainty
Explore BlackRock's latest perspectives and analysis.
Investing amid election uncertainty
U.S. ELECTION IMPLICATIONS
Investing amid election uncertainty Investing amid election uncertainty
Explore BlackRock's latest perspectives and analysis.