Global markets continued to sell-off on Friday, with the US market sliding for the 9th consecutive day as investors remain cautious before the US election. Traders have moved into relatively safer assets as opinion polls showed the U.S. presidential race is tightening after Hillary Clinton seemed poised for victory. While history has shown American stocks have generally risen in the days before a presidential election, anxiety about the outcome of the November 8th vote has weighed on the market this time. Given what happened with the surprise UK “Brexit” vote earlier this year, we believe markets are far more cautious in terms of making assumptions around who will win the US election.
We had highlighted the risk of the markets correcting heading into the US election, particularly given the levels share markets were trading at. Closer to home the ASX & NZX have not been immune to global moves with the NZX now down significantly from its all-time high reached in September. The value of active stock investment (versus passively buying the market) is not only limited to “stock picking”. There is an abundance of research which suggests that the true value of active management comes from avoiding downside losses, which over time greatly enhance overall portfolio performance. are firm supporters of this view, and in both our Australian and NZ model portfolios we have an allocation to cash at the current juncture.
Many investors will be awaiting the election outcome before making investment decisions. In saying that, we have highlighted in the past that if the correction became more severe (i.e. greater than a -10% market move) it could be setting up for more of a buying opportunity in selected quality stocks with strong growth drivers, for medium term investors.
Trump on Tuesday?
Given what happened with the surprise UK “Brexit” vote earlier this year, we believe market are far more cautious in terms of making assumptions around who will win the US election. One of the arguments used to explain why Britain recently decided to leave the European Union is that it represents a tipping point towards populism in the Western world, and this also explains the rise of Trump in the US. As we have discussed previously, around the globe issues such as wage growth, income equality, and the shrinking middle class have fuelled populist political movements based on hopes and fears. The argument is that globalization has failed to adequately reward the middle class in advanced economies, and decreased the ability of these groups to raise their standard of living via housing wealth and cheap credit, which has led to disgruntled voters.
Sign up for a FREE TRIAL membership below to read more about our portfolios & market views.