Review: If Trump Takes White House, Investors May Turn to Gold – Analyst

Well, this article hits all sorts of buttons. We have pieces from our last two quarterly newsletters on the effects of Presidential elections on stock market returns and commodities respectively, as well as the fact that you cannot predict the future. So let’s step through all of them.

In our last quarterly newsletter, we looked at whether including commodities in your portfolio made sense. The short answer is no, it doesn’t make sense for most people. They have higher historical volatility than equities and lower historical returns than inflation. That doesn’t sound like a great place to sit out an uncertain market does it?

Even worse, commodities tend to do worse during times of uncertainty. In other words, commodities—including gold—are not good stores of value. If you want to get out of the markets if Trump wins in November, commodities are not the way to do it (and I’ll have some really bad news for you later).

In April, we looked at how the Presidential elections have impacted stock returns. Historically Democratic presidents have had better stock market returns during their terms in office, even if you include a lag to offset the speed of government.

But it’s important to look at causality. Is the relationship meaningful? In this case, half of the country will say yes, the other half will say no. But either way, I think pretty much everyone can agree (good or bad) that Trump is not the typical Republican candidate.

But even leaving all of this aside, the underlying point is that you cannot accurately predict what the market will do. Financial markets are incredibly good at absorbing information, quickly processing it, and then using it to adjust security prices. The market’s assessment of how likely it is that Trump will win—and what that will mean to the economy—is already priced in.

As the campaign moves along, those assessments will change, but it will be changing based on new information, and—crucially—how that new information compares to what the markets expected to happen. So unless you are able to see what tomorrow’s headlines are going to be, there is no way of knowing what the market will do next.

For more on understanding the markets, download our ebook “Making the Markets Work for You.”


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