Investment Insights: Don’t mix politics with pleasure

Wade Balliet
Posted by Wade Balliet
Investment Strategy

This weekly report presents insights from our Global Investment Management team.

Capitol in Washington, D.C., as dusk arrives and lights illuminate the building, with its reflection in a pool in the foreground.U.S. politics seem to be spilling into business and the markets – at least more than normal. TVs across the nation were tuned in to the presidential debate earlier this week as one of the most controversial elections in history comes to a head. While the two heavyweight contenders praised themselves and traded verbal blows with one another, the markets have been churning on lackluster economic data coupled with a divided Federal Reserve.

As we expected, Yellen and her cohorts decided not to raise rates at their meeting last week, but it is notable that there were a few more dissents this time around. Financial markets rallied on the news as investors assumed continued lower rates remain supportive to businesses and growth; quarter-over-quarter earnings have fallen in the last several periods, according to data aggregated by Bloomberg. The S&P 500 Index gained almost 2% following the Fed meeting before the mixed results seen over the last few trading sessions. September has been a relatively volatile month as stocks broke the quiet calm we saw in July and August.

Oil prices also rebounded before another decline on the “kick the can” news that rates would stay low, at least for now. The commodity has remained volatile. Crude prices fluctuated again as energy officials concluded a three-day forum to discuss the seemingly distant goal of agreed production cuts between different OPEC members as well as Russia. Saudi Arabia has offered to cap production, versus an actual cut to output, but to no avail. OPEC will meet in Vienna at the end of November for formal talks on the instability of global oil supply.

The presidential race has undeniably been one of voter vexation and immoderation – each candidate seems to be on the opposite end of an ever-changing political spectrum. Not to mention the dismal approval ratings for the legislative branch. A NBC News national exit poll showed the lowest level of satisfaction with Congress in 25 years, reflected by a 78% voter disapproval rating. This is at a time when the federal budget is again coming into question and a bipartisan Congress must come to an agreement or kick the can down the road – the Fed comes to mind – with more stop-gap funding.

We have continually mentioned that our strategies are defensively positioned within each respective asset class, including a small bias to equities. We are also closely monitoring the market for buying or risk-reduction opportunities over the near term. Our team anticipates the major market factors over the remainder of the year will be the presidential election and federal budget issues, the distinct possibility of a rate hike in December, and, of course, economic data. At least we know economic data won’t kick the can.

Chart showing market returns as of 9/27/16

Investing involves risk, including the possible loss of principal and fluctuation in value. Economic and market forecasts reflect subjective judgments and assumptions, and unexpected events may occur. Therefore, there can be no assurance that developments will transpire as forecasted. The information in this newsletter is for informational purposes only and is not intended to be investment advice or a recommendation. Nothing in this newsletter should be interpreted to state or imply that past results are an indication of future performance.

Fixed income securities are subject to interest rate, inflation, credit and default risk. The bond market is volatile. As interest rates rise, bond prices usually fall, and vice versa. The return of principal is not guaranteed, and prices may decline if an issuer fails to make timely payments or its credit strength weakens.

International securities involve additional risks such as currency fluctuations, differing financial accounting standards, and possible political and economic instability. These risks are greater in emerging markets.

Diversification and asset allocation do not ensure a profit or guarantee against loss.

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