Dealing With Market Surprises
The last 24 hours has been a surprise to many waking up to news of a Donald Trump presidency. Stock markets don’t like surprise, which was evidenced by the Dow Jones Futures plummeting almost 1,000 points before recovering from those levels.
As I think about this, I’m reminded of a similar political event which happened just a few short months ago which also sent futures tumbling….Brexit.
The surprise vote for Great Britain to exit the European Union put US stock markets in a tailspin with markets losing 7% over two days. Yet in a few short weeks following Brexit, the markets were 1% away from all time highs after rallying back from the downturn.
While we don’t know exactly what the future will hold, our experience here at Biltmore tells us not to panic during these political events. Investors who sold out of their equity positions the two days following Brexit didn’t get a chance to participate in the recovering stock markets.
While in the short term markets react to investor fear and greed, it’s our belief that over time, markets react to the fundamental earnings growth of companies. The United States has always been resilient, and while we certainly have had valleys, markets historically have recovered to reach new highs. Remember that the results of this presidential election have not changed corporate earnings but it was a surprise, and markets hate surprises. Having said this, even now the markets have already recovered most of their morning losses and currently stand down 1.5% from yesterday’s close, which is about the levels we saw on Friday of last week.
This kind of volatility is exactly why we at Biltmore take time to understand your risk tolerance and build customized, diversified portfolios based on this. Additionally, our use of alternative investments within portfolios generally helps support them during these events, relative to the performance of markets.
Please know we take your financial security very seriously and are watching these events and your portfolios on a daily basis. If you have any questions, please don’t hesitate to reach out to your advisor.
D. Tyler Vernon
33 Witherspoon St.
Princeton, NJ 08542