As the dust settles from the US presidential and congressional elections, markets are digesting how the balance of power could impact opportunities and risks in 2017 and beyond. What should investors be thinking about now that the ballots have been cast?
1. Short-Term Volatility Isn't Unusual in Election Cycles
Elections happen on a regular basis, and investors typically endure fits of volatility as markets digest the possible implications of policy intentions and the balance of power. However, we think long-term dislocations are unlikely.
2. Don't Overlook The Really Big Decision Drivers
Stories about election results and the shifting power structure seem to dominate the media cycle, but there are much bigger influences on markets: government finances, central bank policies, oil prices and currency changes are among them.
3. Policymaking Isn't Just About The Executive Branch
Sure, the presidential contest has been the big headline. But Congress is just as important, and at least one Supreme Court seat will be impacted. These moving parts—and the design of government—make it hard to handicap policy outcomes right now.
4. Ultimately, Opportunities Are About Fundamentals
Policy decisions could eventually have some effect on opportunities—health care is one obvious example. But policy creation takes a while…and major change isn’t guaranteed. We believe fundamentals ultimately drive investment performance.
5. Don't Get Lost in the Ballots
In the post-beta-trade era, market returns are likely to be lower. The focus should be on enhancing performance with high-conviction insights and active positioning. It will be a while before the policy implications of the election results become clear.