For most of this year the markets have been moved by only one thing: Covid. Now, though, as election day draws nearer, and rhetoric intensifies, markets will have to begin to contend with the potential outcomes of the election.
Regardless of your political inclinations, or ours, there are certain areas of the economy which will perform better under one or another outcome. There are also areas which will perform relatively well regardless of the outcome. You should be working with your advisor to objectively adjust your portfolios in such a way as to help capitalize on those pockets of opportunity while trying to remain defensive against possible pitfalls.
In the short-term, it may make sense to make strategic changes to the proportion of portfolios allocated to stocks, as you watch the election season unfold. In the event of a contested election with a drawn-out legal battle, markets may experience greater than normal volatility. Having less exposure could help you weather that storm. It remains to be seen, for all of the talk, whether vote-by-mail is utilized as much as some expect. We don’t expect this volatility to be a long-term phenomenon at this point.
Technology is still likely to remain a focus regardless of the outcome, as innovations in telecommuting, e-commerce, and entertainment continue to make our current semi-secluded lives possible and tolerable.
Non-US companies may begin to show more promise as their fundamentals improve compared to US companies, post-Covid, and you may look to capitalize on this in portfolios.
Through election season and beyond, we are eyeing inflation.
Currently worldwide production is still down, while consumption has increased substantially. Too many dollars chasing too few goods is the recipe for inflation, and you may want to consider making necessary adjustments in portfolios to account for this.
Used cars, for example, have experienced the highest rate of inflation in more than 51 years! Every year a percentage of the US fleet simply ages out and is scrapped. Add to that a general fear of public transportation, which has been forcing people into the car market who may not otherwise have owned one. In a year when very few new used cars have been produced, the demand for used cars has soared forcing prices into record territory. Expect other scarce items to follow suit.
The Fed has indicated that it is willing to allow inflation to run higher than normal, without taking action. While we are not expecting hyperinflation, we do think prices will increase at a greater than average rate. Even if the Fed doesn’t take action, there are steps you can take to help reduce the impact on your portfolio.
In the mid- to long-term, we expect taxes to increase. The government has been spending money at a record clip. The purchase of US debt by foreign holders has decreased this year, which means that the deficit must be funded either by increasing the purchase of debt by US holders, or from tax revenue. Regardless of who wins the election, we expect a tax increase, although it will likely not be shared by everyone.
It appears that this election will be a very close one. Emotions are running high on all sides. We urge you to try to tune out the noise as much as possible. Regardless of the outcome, there will be opportunities in the markets, you should be working side-by-side with your Certified Financial Planner® to help ensure your portfolio can weather the uncertainty, volatility, and inflation on the horizon.
Stephen Kyne, CFP® is a Partner at Sterling Manor Financial, LLC in Saratoga Springs and Rhinebeck.
Securities offered through Cadaret, Grant & Co., Inc. Member FINRA/SIPC. Advisory services offered through Sterling Manor Financial, LLC, or Cadaret, Grant & Co., Inc., SEC registered investment advisors. Sterling Manor Financial and Cadaret, Grant are separate entities. This article contains opinion and forward-looking statements which are subject to change. Consult your investment advisor regarding your own investment needs.