Markets react to a Trump surprise

Azzad Special Election Comment

Early this morning, Dow futures dropped 750 points in the wake of Donald Trump’s electoral victory. In fact, the news sent a shock wave through global markets, with most selling off over fears of what a Trump win means for the status quo.

Although the U.S. stock market has posted gains as of this writing, investors are still left with a sense of unease. A look back at history offers an important lesson: stock market moves over the 24 hours following an election predict the market’s direction over the next 12 months less than half the time.

In 2008, when Barack Obama defeated John McCain stocks plummeted five percent following the election. 

With Trump about to assume office, keep in mind this interesting comparison showing the relationship between the U.S. government’s composition and market performance.

Between 1926 and 2015, when both houses of Congress and the White House were controlled by the same party — as they will be in January 2017 — both the S&P 500 and a diversified 60/40 stock/bond portfolio averaged the highest returns.*

The next highest returns came when government was “partially divided,” with the House and Senate controlled by the same party, but the White House held by a different party. The “completely divided” scenario, which occurred when the two houses of Congress were divided, yielded the worst results.

politics-and-investment-performance
Far more important are the larger positives we’re seeing in terms of employment (161,000 jobs added in October), growth (2.9% growth in the third quarter compared to 1% during the first half of the year), and corporate earnings (2.7% growth compared with the same period last year).

As we all know, there are many factors that go into market performance, and making rash investment decisions because of attention-grabbing headlines is hardly a winning strategy.

It’s possible that we will see some short-term volatility now that the results are in. If so, consider rebalancing your portfolio. Having a mix of assets that works best for your situation is an important part of investing. Over time, market moves can affect the allocation of your assets. For example, because stocks have enjoyed outsized gains relative to fixed income lately, your portfolio may now have a higher percentage of stocks than you originally intended for your goals. Therefore, you might be taking on more risk than you realize and should consider selling some of your stock holdings and reallocating them to less volatile fixed income. An Azzad representative can help you do that.

And finally, if your investment goals or time horizon have changed, we’re here to help. Give us a call at 888.86.AZZAD or email operations@azzad.net.

*Morningstar Direct, Morningstar calculations. Past performance is no guarantee of future results. This is for illustrative purposes only and not indicative of any investment. An investment cannot be made directly in an index. Diversification does not eliminate the risk of experiencing investment losses. Government bonds are guaranteed by the full faith and credit of the United States government as to the timely payment of principal and interest, while stocks are not guaranteed and have been more volatile than bonds. The time period examined is 1926–2015, and the returns are average annual returns. Stocks are represented by the Ibbotson SBBI Large Company Stock Index. Bonds—Ibbotson SBBI U.S. 

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