Your average politician would have you believe that if you only vote them into power, they will magically pull a lever and push a button to make everything better.
“We need somebody who can take the brand of the United States and make it great again,” declared Donald Trump when announcing his candidacy. The implication to investors is that if you fail to vote for a certain candidate, your investments will tumble.
Fortunately, Mr. Market has a tendency to be skeptical of such claims because there are too many checks and balances in Western democracies for any one ruler or group of rulers to affect change beyond a certain point.
A good example is the media’s worry of the so-called “fiscal cliff” and “sequestration” risks in late 2012 and 2013, respectively. Remember those? If the two parties in Washington failed to agree on a new budget, automatic spending cuts and tax hikes were going to kick in so both parties would feel the pain. It was supposed to be a deterrent, one that neither side expected to come to pass.
Not only did it come to pass, but the federal government was “shut down” for 16 days. Yet, the stock market remained rather calm and rational throughout the ordeal, as did the general economy.
In Europe today, some investors are worried about Brexit, the possibility of England leaving the 28-member European Union. The vote is set for June 23 and the prospects are about as close to 50/50 as can be (at least they were at the time of this writing). There are some smart sources, like The Economist, arguing that to leave would be a mistake. While it is the first country contemplating leaving the EU, England never did give up its currency (the British pound) and, being an island, is physically separate from the mainland of Europe. But regardless of how the vote goes, details would take years to be negotiated and implemented. Also, a relatively small 6.8 per cent of Britain’s work force stands to be affected.
Whatever the potential economic consequences or benefits may be, they will take years to play out so markets are not likely to be dramatically affected in any predictable way in the near term. Investors trying to market-time the effects will have to make a number of correct guesses to profit. If you really think you know what the various outcomes will be, write them down and then check the results in six months. You will probably be surprised.
Today, some market participants fear a Trump victory will wreak havoc on stock prices or a Clinton victory would unleash the banks to do whatever they want and drug prices to tumble. Yet, a victory for either will most likely take years to play out in the markets. Clinton’s ability to reduce pharmaceutical drug prices will be much more difficult in practice, as will Trump’s plan to slash taxes and build a wall for the Mexican government to pay for.
Mr. Market tends to see through mere rhetoric or scary media headlines and investors should too.
Lori Pinkowski is a senior portfolio manager and senior vice-president, Private Client Group, at Raymond James Ltd. This is for informational purposes only and does not necessarily reflect the opinions of Raymond James. Reach Lori at 604-915-LORI or [email protected]. You can also listen to her every Monday morning on CKNW at 8:40 a.m.
