Election Week Revisited, by the Numbers

Much has been made of the precipitous fall and amazing recovery in the US equity futures markets during the wee hours of election night and the gains that followed on the days following the election. But what has not been widely discussed is that the fall was actually sandwiched between strong gains (2.7%) early in the week – the two days before the election after FBI Director James Comey once again exonerated candidate Hillary Clinton (presumably clearing her path to the presidency) and the two days after Donald Trump’s surprising victory.

So markets rallied in anticipation of the presumed Clinton victory, but then curiously added further to the gains (albeit after a brief detour in the early hours Wednesday morning) on a stunning Trump win. The conclusion of the election was sure to remove at least some market uncertainty and calm investor fears, but the surprising nature of the results and following market reactions also took investors by surprise.

While US equity markets were generally strong throughout the week, post-election winners and losers did emerge that appeared to be driven by President-elect Trump’s ambitious agenda of tax cuts, fewer regulations, increased defense and infrastructure spending and health care reform (along with the possibility that a Republican-controlled Congress can help some of these proposals become reality).  Just how successful he’ll be remains to be seen, but that has not slowed investors from acting on their anticipation. At this point, most appear to be betting on his ability to succeed.

Quick Observations

• Pre-election equity markets were markedly higher across the globe, led by the strong rally on Monday after the FBI announcement regarding the Clinton emails.
• Post-election US equities took a leadership role, while most other equity markets and major asset classes retreated.  Note the divergence between the US Dollar Return and Local Currency Returns for the International Markets (Developed and Emerging).  This indicates that the US Dollar appreciated relative to the local currencies of those markets.  For example the International Developed Markets actually were up (+0.3% in their home country currency), but when that is translated back for a US$ investor the net result was a loss of -0.7%.
• Even within the US market there were clear winners and losers highlighted by the difference between the Dow Jones Industrial Average (Dow) and the S&P 500.  The Dow may include only 30 securities versus the much broader S&P 500, but the real differential was in the sector returns and weightings.  As you can see in the table below, the strongest performers from a sector standpoint were Financials and Industrials which represent much larger weights in the Dow.  Financials make up roughly 19% of the Dow whereas in the S&P 500 it is only 13% and Industrials represent nearly 20% of the Dow, but only 10% of the S&P 500.

As we all know, campaign speeches and rhetoric are not policy and it will be some time before we know what will actually play out and when.  It’s safe to say that President-elect Trump, like every President before him, will not accomplish everything in his stated agenda and a significant amount of time will pass before any implementation. That’s never stopped investors from placing their bets early, though, and this time is certainly no different.

Our approach continues to be one centered on discipline, diversification, and the long term.  Portfolios are designed with the goal of reducing volatility and providing opportunities to take advantage of market fluctuations.

If you have any questions about this content or would like to discuss your wealth management needs with us, please contact anyone on our team at 404-874-6244 or email me here.

For perspective on the tax implications of President-elect Trump’s proposed agenda, read this piece from our friends at Smith and Howard.