Potential Election Outcomes and What They Mean For You

The federal election is taking place and emotions are running high. Many of us are wondering what the world will look like when we wake up tomorrow. Until the past few days, the S&P 500 and other market sectors have been weak.  This decline is partially due to traditional market trends that occur around election time, but it is also due to the uncertainty and volatility that this election has brought. The recent revelations surrounding Hillary Clinton’s email leaks and the Clinton Foundation have not helped the market position. 

With all the scandals and accusations, how are the pre-election standings presently playing out?

Where Do the Candidates Currently Stand?

You might think that all the press surrounding Hillary and her emails would be negatively affecting her campaign. While this is true, it may not be enough to irreversibly damage her run for president.

Current data^[1] shows us that Clinton has approximately 224 electoral votes locked down, while Trump can only claim 180. This leaves 134 electoral votes in no man’s land. In order to secure a win, Trump will have to triumph in all of the battleground states where Hillary is not leading. Many analysts still consider a Trump win to be a long shot, but as the recent World Series showed us, anything can happen. If the Cubs, who only had a 10% chance of winning the championship, could take home the prize, we should at least acknowledge that Trump has a chance.  If you want an early tell on the election results tonight look for who wins both Ohio and North Carolina as political experts suggest Mr. Trump will have to win both of these states in order to have a realistic chance at finding 270 electoral votes. 

How might everything play out on November 8^th? Let’s look at three possible election outcomes and how they might affect the market.

Clinton as President

All the predictions at this point anticipate that the markets will rally if Clinton wins the election, although some of that may have already been baked in with the market's move in the past two days. While Wall Street isn’t overly fond of Hillary, she is a known entity and the markets like predictability. 

What should you do with your investments in this scenario? We believe that the best investment opportunities are likely in attractive market sectors that are already oversold. The thinking is that these sectors have already declined enough to render their yields more attractive than bonds. Focus on growth plus yield and seek out exchange-traded funds (ETFs) with dividends over 3%.

Trump as President

Most forecasts suggest that a Trump win would bring about short-term negativity in the stock market. Some have even compared a Trump victory to the Brexit situation this past summer, where stocks fell 5% before rallying impressively. If this situation ends up becoming a reality, the best opportunities will likely come from waiting for the dust to settle, stocks to stabilize and then looking for indices or sectors that feature both growth plus yield for your investments.  We believe the U.S. economy is currently strong enough to withstand a short-term market decline.

Even though experts think a Trump victory is a long-shot, the markets have taken this scenario into consideration already with the recent weakness in stocks. Therefore, if Trump does pull out a win, the market may fall less than expected. 

A Hung Election

A sequence of events very few have prepared for is a hung election. What if we wake up Wednesday morning and discover we have no resolution to the election? In this case, there is the possibility of more volatility in the markets.  Depending how long it looks like it might take for the election to be resolved will determine if we need to change our portfolio positioning for clients.

This occurrence could cause a major amount of uncertainty to our economy and bring instability. The likelihood of this happening is slim, but anything could happen in this outlandish election. If a hung election does develop, we think the most probable outcome would be for it to be resolved in days or weeks, therefore only impacting the market in the short-term. 

Stay Calm and Carry On

Despite how many different scenarios could occur this week, don’t let worry get the best of you. It’s been said before, but America and her economy are affected by so many factors that they will not fall apart from these elections alone. Even if your preferred candidate does not get elected, or if you don’t like either of the choices, just remember that we’ve experienced worse than Trump or Clinton and still survived.

The presidential election is always critical for our country and will always have some impact on your life and the economy. If you are concerned about whether or not your portfolio is built to withstand market fluctuations, I encourage you to contact me so we can reevaluate your strategy and give you peace of mind. Call my office at 708.488.0115 or email us at lumencapital@hotmail.com to set-up an appointment today. I look forward to helping diversify your investments with a low-expense, tax efficient investment vehicle, while limiting risk of unexpected market changes.

*We are long ETFs related to the S&P 500 in both client and personal accounts.  Please note these positions can change at any time without notice to readers of this note.

About Chris

Christopher R. English is a money manager and the founder of Lumen Capital Management, LLC, a Registered Investment Advisory firm. Specializing in investment management and developing customized portfolios that reflect a client’s values and needs, he has nearly three decades of experience working with individuals, families, businesses, and foundations. Based in the greater Chicago area, he serves clients throughout Illinois, as well as Florida, Massachusetts, California, Indiana, and other states. To schedule a complimentary portfolio review, contact Chris today by calling 708.488.0115 or emailing lumencapital@hotmail.com.

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^[1] http://www.realclearpolitics.com/epolls/2016/president/2016_elections_electoral_college_map.html