Market Update: Sep 10 2020
- Presidential Election
- Market Leaders
Here is a recap of our live Q&A session held on 9/10/20 presented by Joe Randazzo JD, CFP® from FNA Wealth Management and Dave Stone CPA, CFP® from Tartan Wealth Management.
Details for our next session, September 17, can be found here.
What sectors of the market do you expect to lead the market moving forward?
- As we have discussed since March, technology and growth stocks have led the market over value-oriented and other areas of the market. We believe that tech is due for a pullback and we should see other areas lead the market in the coming weeks.
- We believe that the following sectors may replace technology as the market leaders:
- Value-oriented stocks – Financials and energy stocks typically do well during the 90 days leading up to an election.
- International stocks – International stocks have been underwhelming over the last couple of years relative to US stocks. We think this could change as there are many countries who have not seen the severity of the economic distress that the US has and recovery will be potentially be easier and faster. A weak US dollar can be a good backdrop for investing internationally.
What is the market telling us about the election?
We don’t believe the markets have handicapped the election as of yet regardless of what the polls are indicating as this point. As we learned in the last election polling numbers may not mean much in who actually wins. According to brokerage firm BTIG, going back to 1928 incumbent presidents have won nearly 90% of elections when the S&P 500 is positive in the three months prior to the election. This has been due to investors anticipating less policy change and therefore less shifting of portfolios ahead of an election.
The winner of the election will likely not be as big of an influence on the market as politicians suggest. Company fundamentals is more of a driver of stock performance than Washington. We may see short term noise with election results but for long term investors this should have little impact on your asset allocations.
The views and opinions expressed herein are those of the author(s) noted and may or may not represent the views of Capital Analysts or Lincoln Investment. The material presented is provided for informational purposes only. Nothing contained herein should be construed as a recommendation to buy or sell any securities. Past performance is no guarantee of future results. No person or system can predict the market. All investments are subject to risk, including the risk of principal loss. Asset allocation does not guarantee a profit or protect against loss.
Growth funds focus on companies that managers believe will experience faster than average growth as measured by revenues, earnings, or cash flow. While growth funds are expected to offer the potential for higher returns, they also generally represent a greater risk when compared to value funds. They tend to do better than the overall market when stock prices in general are rising, while underperforming the market as stock prices fall, taking into account that past performance does not guarantee future results.
The goal of value funds is to find proverbial diamonds in the rough; that is, companies whose stock prices don’t necessarily reflect their fundamental worth. In searching for these companies, managers look for what many experts call a "margin of safety." This means that the market has discounted a security more than it should have and that its market value, the price at which it is trading, is less than its intrinsic value, the present value of its future cash flows. In general, value funds focus on perceived safety rather than growth, often investing in mature companies that are primarily using their earnings to pay dividends.
International investing involves special risks, including, but not limited to, the possibility of substantial volatility due to currency fluctuation and political uncertainties.
S&P 500 Index is an index of 500 of the largest exchange-traded stocks in the US from a broad range of industries whose collective performance mirrors the overall stock market. Investors cannot invest directly in an index.