With the U.S. Presidential election only 10 days away, much uncertainty lingers amongst investors, especially in light of yesterday's FBI announcement regarding the investigation into Hillary Clinton's emails. Such October surprises are common in Presidential politics, but that doesn't mean they rattle investors any less. As soon as the FBI announcement was made public, the Dow dropped substantially and the Mexican peso declined sharply versus the U.S. dollar. Thus, political and economic news can substantially move markets, and also, investor's expectations. Wall Street has differing views on what a Hillary Clinton or Donald Trump Presidency means for stocks and the economy, but the nervousness that Wall Street watchers may exhibit over the Presidential outcome shouldn't cloud individual investor's judgement.
A key argument in favor of staying calm despite highly uncertain times comes from the recent decision by British citizens to vote in favor of the United Kingdom exiting the European Union (EU). While public opinion polls up until the day of the vote seemed to indicate that British citizens would vote to remain in the EU, the news of Brexit was met with dire predictions of economic calamity and misfortune (i.e. reduced free trade, labor and people movements, etc.) that would befall the U.K. should it choose to leave the economic and trade connections with the EU. While we are dealing with a relatively small sample size, the U.K. economy actually grew more than expected (+0.5%) post-Brexit. While much could change in the future, this is one recent example of the doom and gloom that pundits and media often predict failing to come to fruition.
The Brexit discussion, in turn, brings me back to the jitters investors are exhibiting regarding our Presidential election. While emerging economies like China and India will no doubt play a larger and more important role in the world in the coming decades, the United States still remains the world's pre-eminent economic superpower. Many analysts argue that we could lose that role to China or some other emerging players in the future, but we must focus on the here and now and improving American economic competitiveness on the world stage. The media likes to use loaded, attention grabbing headlines to influence public opinion and drive viewership. A key consequence of this is that the editorializing that we see from both political viewpoints leads to uncertainty. This uncertainty often manifests itself in spikes in the VIX, a key indicator of volatility in the marketplace. If there is one thing investors hate, it is uncertainty. Markets tend to perform better when the future is easily mapped out and understood. If I could make one recommendation for the next few weeks, it would be to avoid focusing too much on the electoral headlines and the doom and gloom that the media may push regarding either outcome. Despite what many pundits would have you believe, we will likely be just fine either way. Remember, the United States has endured two World Wars, depressions, recessions, terror attacks, and countless other calamities that we recovered from economically. Stay invested in the market, dollar cost average into your positions, and keep your eyes on the prize: building wealth over the long-term, slowly but surely.
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