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Playing the Post-Election Market Slump
The current 3.5% slump in equity prices since the election has created a raft of uncertainty about the future direction of the market. In my view, the sell-off action is not sustainable. Here’s why:
- The fiscal cliff. In my experience, it’s the problems no one worries about (and are therefore not reflected in stock prices) that are liable to cause the most harm. Everyone knew about the fiscal cliff before Tuesday. It’s been baked in the cake for months, and thus is a non-issue.
- Disappointment. One-half of U.S. voters were left unhappy about the election results. Retail investors tend to trade with their emotions—and that is one of the worst reasons to change a portfolio. Nothing has fundamentally changed in the last 72 hours, and the sun will come out tomorrow.
- Good news. We continue to see better employment and consumer confidence numbers. Rates are still low, and energy prices are dropping. China is attempting to avoid a slowdown by allowing more borrowing. I don’t see a dark lining.
It could be that investors are nervous about positions merely because their allocations are off-kilter. Assuming a rightly sized mix of equity, fixed income and alternatives, a well-diversified investor should be fine in this environment.
About the Author
Ben Warwick, Quantitative Equity Strategies
Veteran investment strategist Ben Warwick brings 20 years of investment management expertise to AdvisorOne.com in his blog, Searching for Alpha. His market and economic insights provide readers with an insider’s view on generating alpha through asset allocation, the use of strategic portfolio “tilts” and alternative investments.
Ben Warwick founded Quantitative Equity Strategies (QES) in 2002 as a platform for implementing his quantitative investment strategies. The firm manages assets with traditional long-only equity and fixed income, private equity, managed futures and alternative investment mandates. QES has developed an industry leading expertise in building investment programs that can replicate alternative returns, while offering daily liquidity and transparency. These products include the HFRq, a hedge fund replication strategy developed in concert with Hedge Fund Research in Chicago; the Managed Futures Beta Index, with Aspen Partners; and the Nomura QES Modeled Private Equity Returns Index (PERI), which was developed with Nomura Bank and Preqin, the leading source of information in the private equity industry.
He is the author of several books, including "Searching for Alpha: The Quest for Exceptional Investment Performance," (Wiley, 2000) and "The Handbook of Managed Futures," with Carl Peters, (McGraw-Hill, 1996). He can be reached at ben@qesinvest.com.
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