Author’s note: These observations were written between 11:30 pm and 12:30 am while watching US election results on various networks and web platforms. Since then, it’s been interesting to see how rapidly markets and investors adjusted to what seemed distressingly shocking economic news less than 72 hours ago.

Election night, November 8, 2016

At 11:30pm CST it’s beginning to look like Donald Trump will become the 45th President of the United States. Investment markets, in futures trading have been down by as much as 5%. As investors have experienced many times, unexpected geo-political events (elections, wars, etc.) make many speculators and investors nervous.

The conventional wisdom leading up to today’s vote counting was that Mrs. Clinton would win the Presidency, Republicans would hold the House of Representatives, and the Senate was a toss-up. The completely unexpected seems to have occurred in the combination of Mr. Trump’s win and a Republican sweep in Congress. Investment markets (made up of all investors) had priced in the conventional wisdom, and got it wrong.

While we can’t predict what investment markets will do in the next few weeks, we do have a recent case study to consider; the Brexit vote from this past summer. Polling data and betting markets in the UK indicated a narrow expectation of a vote to “Remain” in the European Union. Investment markets settled down and began to rise modestly in advance of the vote. Then came the surprise vote to “Leave” and, over the next three business days, the FTSE 100 index of UK stocks declined a rather steep 5.6%. Since that decline, the FTSE has not only recovered, but moved well back into positive territory for the year.

The message here is not that we know this decline in US markets is temporary and will reverse over the next few days or weeks. The message is that markets seldom respond to the unexpected positively, and this appears to be following that historical trend.

So, what are investors to do? As redundant as this may sound, investors should strongly consider holding their portfolio as it is (“stay the course”) and continue to be long-term thinkers.

The graphic below shows the 2016 performance of the FTSE 100 (in Britain’s local currency) rising before the Brexit vote, falling immediately following and then rising again to show a positive result for the year so far.


Source: Morningstar DirectSM

The next graphic is a long-term look at the US stock market through numerous Presidential administrations.


Source: Dimensional Fund Advisors, LP and Standard & Poor’s Index Services Group

The big picture takeaway from this is the long-term upward trend of the US stock market through various administrations and historical crises. Remember, the design and allocation of your portfolio should always be one for all seasons, both the expected and unexpected.

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