The U.S. presidential election is first and foremost on the minds of most wealthy investors. We are facing a “change election,” with the possibility of electing the first woman as president or electing someone with no political background at all.
For the third quarter of 2016, UBS Investor Watch focused on what either of these outcomes might mean, by analyzing investor sentiment in regard to the election and its effect on the economy, and ultimately its investors’ wealth overall.
Both major party candidates generate strong emotional responses. When surveyed about the impact of this election on the country, 89 percent of our respondents indicated that they would feel negatively about the direction of the country if the candidate they opposed should win.1
On several other measures, the vast majority of respondents said they were nervous about the results, regardless of who wins; they said they felt that the government was not addressing the major issues facing the country.2
In fact, 8 out of 10 investors surveyed said they believed that the outcome of the election would directly affect their financial wellbeing.3 The majority of investors also said they were considering portfolio changes ahead of the election and some had already taken this step.4
Given these strong emotional responses, we think it makes sense to take a measured approach. The UBS Equity and Derivatives Strategy report from June 28, 2016, examined the impact of presidential elections on the return of the S&P 500. While we cannot predict the future, history can help inform what may happen.
8 out of 10 investors surveyed said they believed that the outcome of the election would directly affect their financial well-being.
The data shows that presidential election years tend to be positive for equity markets, particularly the last six months of those years
.5 The caveat, however, is that when that election occurs in the eighth year of a two-term president, the returns tend to be negative.6
But, if we focus on the years where there has been a “change election,” defined here as one where there has been a generational change or a strong third-party candidate, we see less of a directional bias. However, we do see more volatility leading up to the election, followed by positive returns after Election Day.7
It is probably not surprising, then, that our survey confirmed the respondents felt that things would be better if their candidate won, and worse if the opponent won.8 What is a bit surprising is that 75 percent of the respondents felt that this election was going to be more significant than others in recent history.9
Always wanting to be careful of “this time is different” thinking, we would submit that it probably makes sense to stick to your longterm plan and make measured changes based on fundamentals rather than emotions.
1UBS Investor Watch, 3Q 2016, “Electing the Economy,”p.5.
5Emanuel,Julian and Omar Elangbawy,et.al.,”Presidential Elections and the S&P 500.” U.S. Equity and Derivatives Strategy, June 28,2016,p.1.
8UBS Investor Watch,3Q 2016,p.11.
Andrew B. Shantz and Thomas Mantione are Financial Advisors with UBS Financial Services Inc., at 750 Washington Blvd., Stamford, CT 06901. UBS Financial Services Inc. Financial Advisors engage Worth to feature this article. In providing wealth management services to clients, we offer both investment advisory and brokerage services, which are separate and distinct and differ in material ways. For information, including the different laws and contracts that govern us, visit ubs.com/workingwithus. The strategies and/or investments referenced may not be suitable for all investors. UBS Financial Services Inc., its affiliates and its employees are not in the business of providing tax or legal advice. Clients should seek advice based on their particular circumstances from an independent tax advisor. The views expressed herein are those of the authors and may not necessarily reflect the views of UBS Financial Services Inc. UBS Financial Services Inc. is a subsidiary of UBS AG.Member, FINRA/SIPC.
This article was originally published in the October/November 2016 issue of Worth.