Founder’s Corner: Post-Election Perspectives
13 November 2018
Now that midterm elections are in the rearview mirror, what are the implications for markets and investors? Markets hate uncertainty and with midterms wrapped up, there’s one less uncertainty on the list. As Figure 1 shows, markets have advanced in every year following midterm elections, no matter who wins.
A split Congress is likely to lead to gridlock in Washington, which may not be so bad for the markets. If the business friendly fiscal policies put in place over recent years remain intact, I am of the view that the U.S. economy can maintain its growth trajectory in 2019, if not longer. Thirdquarter GDP came in at a solid 3.5%, and the fundamentals underpinning the U.S. economy are strong—including low unemployment, robust consumer and small business confidence, and increasing capital spending. Even though I believe the markets have more room to advance, that doesn’t mean that investors should expect smooth sailing every day. Midterm elections are done, but we still have the overhang of trade disputes, less robust global growth, and all the well-known geopolitical pressures. All of these factors could make for choppy markets, particularly in the short term.
In environments like this, it’s important to maintain a long-term perspective. So far in 2018, there have been four pullbacks of 5% or more. But there have also been quick advances (Figure 2). Trying to time changes like these is nearly impossible, which is why it is so important to stay invested instead of hopping in and out. More often than not, investors get whipsawed—catching the downside but missing the upside.
Figure 3 illustrates the dangers of market timing. For the year-to-date through November 7, the S&P 500 earned 6.91%, which is a quite respectable return in absolute terms. However, missing the five best days would have resulted in a loss of about 3.8%, and missing the 10 best days would result in a loss of more than 11%.
In addition to staying long-term in your approach, I always recommend maintaining a well-diversified asset allocation, with an appropriate level of downside protection based on your personal circumstances. At Calamos Wealth Management, our approach focuses on providing asset allocation solutions that combine a breadth of actively managed strategies. These could include stocks, convertibles, bonds, and alternatives. By doing so, we believe we can help investors navigate short-term market turbulence as they pursue their long-term goals.
Past performance is no guarantee of future results. Opinions are as of the publication date, subject to change and may not come to pass. Information is for informational purposes only and shouldn’t be considered investment advice. Convertible securities entail interest rate risk and default risk. Fixed income securities entail interest rate risk. Alternatives entail added risks and may not be suitable for all investors.
Active management, asset allocation and diversification do not guarantee investment returns and do not eliminate the risk of loss. The U.S. equity market is measured by the S&P 500 Index. Indexes are unmanaged, are not available for direct investment and do not entail fees or expenses.
Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Calamos Wealth Management LLC), or any non-investment related content, made reference to directly or indirectly in this newsletter will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions.
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