Despite Donald Trump's unexpected victory, despite stock futures declining precipitously as the returns rolled in, and despite the shock and despair at the Javits Center, guess what? The sun still came up on Wednesday.
Everyone - Trump, Clinton and Obama - said the right things the day after the election and the market actually went up against all odds. But expect there to be volatility in the near term, as the reality of the results sets in and we get more insight into what a Trump administration will look like.
But one of the two overhangs on the market, the other being anticipation over when the Fed will raise short-term interest rates, has been lifted. And given that the market has not overreacted to the election results, it seems likely that the Fed will raise rates by 25 basis points in December.
But since the Fed has remained steadfast that it will raise interest rates slowly and in a controlled manner, and even though the initial market reaction may be negative, it is a positive indication that the U.S. economy is growing.
As we finish the year and enter 2017, the market will now be able to focus on corporate profits, which are on a positive trajectory. Additionally, there is bi-partisan agreement that infrastructure spending is needed as is corporate tax reform. So we may see some actual progress in D.C., providing an additional boost to the economy.
But back to the election for the moment. What happened gives additional credence to one of the basic tenets of investing - you can't time the market. Many investors contemplated getting out of the market before the election, which in hindsight would have been a mistake. Other investors contemplated getting out of the market as election night unfolded, which again would have been a knee jerk reaction.
Hopefully you had discussed this phenomenon with your clients prior to the election so that they were not panicking too much on election night. But it's probably not too late to have this discussion now (or again) because inevitably something else that will cause anxiety will come up - the next election, the next Brexit, etc.
2017 and beyond will inevitably have smooth times and bumpy times. So lest we get too excited that the election is over and the Fed will soon act, use every client interaction as an opportunity to reeducate them the basics of successful investing.
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