Markets Fearing a Contested Election

The markets today, Monday, viewed several hours before the opening bell, appear mixed. Some major European indicators are in the red, reflecting apprehensions about increased lockdowns and their economic impact. On Saturday, United Kingdom Prime Minister Boris Johnson announced measures that amount to a  lockdown of most retail stores, restaurants and pubs. Anyone familiar with British culture will know the place of pubs in many individuals’ lives and that shutting them down is an exceptionally drastic move, but Johnson apparently felt that the government had no choice.

Greece and Austria increased their restrictions, following France, Germany, Belgium and Ireland.

Major indicators in North America are all in the green, at time of writing, in spite of record spikes in the COVID 19 virus. The United States hit over 99,000 new cases on Friday and approximately 25 states reported their worst weeks.

I often state that these factors can change before market opening in North America, reflecting the volatility of the current investment environment.  In fact, this morning, they changed twice while I was assembling this column.

Tuesday will be a heavy day for the markets. A contested election would add a layer of uncertainty to the volatility permeating the investment environment. “At this point, markets fear a contested election,” says Kristina Hooper, chief global market strategist at Invesco in a Reuters report. “Anything other than a contested election, a decisive victory in particular, would be good news for stocks.”

Indeed, some traders will be in a holding pattern until the results are final, suggests Joshua Mahony, Senior Market Analyst at IG Group, a London stock firm.

The expectation is that we will see a fresh bout of stimulus unlocked once the U.S. election has been overcome,” he says. “Until then, traders will likely lessen their exposure given the significant uncertainty over what could turn out to be one of the messiest elections of all-time should Trump fail to respect the mail-in vote.”  

Two factors are noticeably clear: after the election – whoever wins – there will be a scramble in Washington to continue repairing the economic damage of the COVID 19 pandemic and bipartisan wrangling and the pandemic will continue well into 2021. If Congress remains divided, the bipartisan wrangling can only increase.

Still, when the proverbial dust settles at least somewhat, extra portfolio reviews may become appropriate. Every portfolio is different, of course, and certainly not every portfolio will need adjustment.

Portfolio issues to be examined could include the proportion of cash and near-cash holdings, adjustments where the individual has little hope of returning to previous employment, the degree to which the portfolio is vulnerable (or not) to the huge changes underway in the retail sector, whether the portfolio is positioned to take advantage of the work-from-home trend and the representation in the portfolio of stocks less vulnerable to the Washington follies and the COVID 19 pandemic such as cyber security stocks. Meanwhile, the constant drumbeat of increasing cases makes the future of travel-related stocks questionable, according to Mahony at IG Group. “With the government stating that travel is advised against, the declines seen for both national bus travel and international air travel stocks reflect the fact that most journ(ies) will have to be cancelled until these restrictions are lifted,.” he explains.   

Especially since every portfolio is different, this may be one of those occasions on which professional licensed advisors prove their merit (again) and their ability to look after a client’s wealth, tailor a portfolio, both to a client’s priorities and to the changing times. It is reasonable to believe that some investors are re-considering their priorities as a result of the pandemic and the best place to do that is on a call with an accredited advisor. It is too soon to be absolutely certain, but it may be that an unforeseen outcome of the COVID 19 crisis is a reinforcement of the advisor’s role as financial counsellor.

Disclosure: I am not now and have never been a licensed financial advisor looking to recruit new clients. However, as a journalist I have interviewed upwards of 300 licensed advisors in several countries over the years and believe that I understand what they bring to their clients.

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