2016 Stock Market Recap

Many people look at 2016 from different angles, but the stock market was an obvious positive to finish the year.  In 2016 the Matson Money US Equity Fund (Diversified US Stocks) was up over 21%, and the Matson Money International Equity Fund (Diversified Intl. Stocks) was up over 8%.  The following is an insight article from the Matson Money client statements about what we can learn from what happened with the election and the stock market.

“The 4th quarter of 2016 was a memorable one in the United States for many reasons. We  experienced the most partisan and unique election season in recent memory, culminating in an election result that few expected. The news of a potential Donald Trump presidency  brought forth many pundits clamoring to give their opinion on how it may affect the stock  market and the economy as a whole.

 
Prior to the election, on Fortune.com, Katie Reilly reported that Citigroup predicted that a Trump win would have a negative effect on the stock market, believing the S&P 500 index would fall 3% to 5% if Trump was elected. Evelyn Cheng reported on CNBC the day before the election that JP Morgan, Barclays, Citi, and BMO all expected a Trump victory would have a negative impact on the stock market, with Barclays being as bold as saying the S&P 500 could potentially fall 11 to 13 percent.

 
Some went even further with their market predictions. Simon Johnson of MarketWatch wrote:
“The election of Donald Trump…would likely cause the stock market to crash and plunge the world into recession.”

 
In an interview with Neil Cavuto, noted billionaire Mark Cuban stated:
“In the event Donald wins, I have no doubt in my mind the market tanks,” Cuban said. “If the polls look like there’s a decent chance that Donald could win, I’ll put a huge hedge on that’s over 100% of my equity positions… that protects me just in case he wins.”

In addition to many analysts predicting a drop, the stock market itself seemed to be indicating the same thing. When FBI director James Comey  announced on October 28th, that he had reopened an investigation into Hillary Clinton’s email server, the betting markets reacted favorably to Trump winning, but the stock market reacted negatively, with the S&P 500 sharply reversing gains and dropping almost 1% intraday. Even more starkly, on election night itself, as results started pouring in showing key states falling to Trump, DOW futures fell as much as 750 points.

Given this information, many investors may have had the inclination to feel uneasy about the performance of the equity markets following the election. Those that reacted to this emotion may have sold stocks and moved their money to cash or bonds. Unfortunately for those that made this decision, the prevailing market predictions of downward volatility proved to be unfounded; in fact just the opposite occurred. From November 1st through the end of the year, equity markets had a substantial growth period, with the S&P rising 5.75%. However, while this is most certainly a fine return over 2 months, investors who diversified their portfolio beyond just U.S. large stocks may have seen even greater returns. Small cap stocks as represented by the Russell 2000 rose 14.27%. But not to be outdone, the Russell 2000 Value, an index of small value stocks, increased 17.95%.

Hopefully investors will remember this period of time not just because of the election result, but as a great lesson that trying to predict the short term move of the stock market – even when it may seem so evidently clear that it will move a certain way – can be folly and cost you  dearly.

 
In the end, choosing a wise financial strategy – and sticking to it – can have tremendous impact on an investor’s long term financial health. Chasing performance through buying and selling is a risky game. Historically speaking, it will only reduce an investor’s real return. Relying on unbiased, non-emotional advice from a trusted investor coach to make good decisions can help an investor bridge that gap between what the average investor makes and the return of the market.”

By Jimmy Hancock

References

  1. Matson Money. “Account Statement.” Letter to James Hancock. 16 Jan. 2017. MS. N.p.
  2. The Financial Markets Have Accepted a Trump Presidency. Digital image. Au.anygator.com. N.p., n.d. Web. 16 Jan. 2017.

Elections Impact on the Stock Market

trump-hillaryIt seems to be all anyone can talk about for the last few months.  This is a very strange election year with crazy headlines and stories to go along with it.  So we have gotten the question “How will the presidential election effect the market?” just about every day.   For questions like this I am glad I have my crystal ball with me at all times so I can tell my clients exactly what is going to happen.  O wait, I don’t have a crystal ball.

Historic Returns

Looking back at election years since 1928, the S&P 500 (Large US Stocks) has had a positive return 21 times, and a negative return 3 times (1).  I think most people would find that hard to believe.   From another source I found this interesting data.

“Since 1833, the Dow Jones industrial average has gained an average of 10.4% in the year before a presidential election, and nearly 6%, on average, in the election year. By contrast, the first and second years of a president’s term see average gains of 2.5% and 4.2%, respectively. A notable recent exception to decent election-year returns: 2008, when the Dow sank nearly 34%. (Returns are based on price only and exclude dividends.)  But no one needs to tell you that the current cycle is anything but average. The Dow racked up an impressive 27% in the first year of President Obama’s second term, and 7.5% in year two. Last year, which was supposed to be the strongest of the cycle, saw the Dow Industrials drop 2%.” (2)

Republican vs Democrat

This is another interesting topic that divides people throughout the country, but is there any stock market effect based on which party gets into power?  Looking at the numbers, since 1900 Democrat presidents have been slightly better for stocks than Republican presidents.  The Dow (US Large Stocks) return when a Democrat President was in office was about 9%, vs the nearly 6% when a Republican was running things.   But normal variations in annual stock market returns dwarf that difference, says Russ Koesterich, chief investment strategist at BlackRock.  (2)

False Patterns

The worst thing an investor can do is get caught up in trying to find and take advantage to patterns in the stock market.  It seems like a good idea, but trust me, it is not in your best interest.   For example, there is a super bowl stock market predictor, which states that if the team that wins the Superbowl is a team that had its roots in the original National Football League, then the stock market will decline.   There is another pattern showing that every mid decade year ending in 5 (1905, 1915, 1925 etc.) since 1905, has been an up year for stocks. (1)  These patterns are just random facts that people try to turn into something that seems important.

In Conclusion

So the best and most honest answer to the question “How will the presidential election effect the market?”, is “I don’t know, but over the long term, stocks have made between 9 and 12% per year on average.”

By Jimmy Hancock

References

1.Anspach, Dana. “How Does the Stock Market Perform During Election Years?” The Balance. About Inc., 16 Oct. 2016. Web. 01 Nov. 2016.

2. Smith, Anne Kates. “How the Presidential Election Will Affect the Stock Market.” Www.kiplinger.com. The Kiplinger Washington Editors, Feb. 2016. Web. 01 Nov. 2016.

3. Donald Trump and Hillary Clinton Together. Digital image. Fabiusmaximus.com. N.p., n.d. Web. 1 Nov. 2016.