Most investors are familiar with this often used cliché: the stock market hates uncertainty. Uncertainty is the inability to forecast future events. As an individual investor, when situations of heightened uncertainty arise, my best defense is to conduct my own due diligence for all my investments and be well-informed as much as possible.
THE STOCK MARKET PRIOR TO THE NOVEMBER PRESIDENTIAL ELECTION
Prior to the 11/8/2016 Presidential election day, Wall Street was on edge with heightened uncertainty and anxiety, after the S&P 500 index finished lower on Friday, 11/4/2016, for the ninth-straight session - its longest stretch of declines since December 1980. [Actually, the S&P 500 index only fell by 3.07% over the nine-day period, versus falling 9.4% over 9 straight sessions 36 years ago in December 1980.] Senior index analyst Howard Silverblatt at S&P Dow Jones Indices stated that the slow downward momentum was due to uncertainty. Among many other wide opinions, this one stood out and caught my attention. On 11/5/2016, Mohamed El-Erian, chief economic advisor to Allianz, the corporate parent of PIMCO where he served as CEO and co-CIO (2007-2014), wrote the following in his article, “4 things to know about the longest stock market selloff since 1980:”
http://finance.yahoo.com/news/el-erian-4-things-to-know-abou…
“… here are four things that investors may wish to know:
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This is not the major stock market “correction” that quite a few professionals have been concerned about. As yet, there have been no signs of “capitulation” trades, nor have there been indications of particular positioning stress and instances of liquidity dislocations. Instead, it has been a remarkably orderly and gradual repricing of risk on account of higher political uncertainty for markets that had positioned itself early for a high probability Hillary Clinton victory next week.
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The rise in political uncertainty is but one of the many “unusual uncertainties” facing the markets (and the economy more generally). And these are not just political. They also relate to economics (including the puzzle of low productivity), financial developments (such as the impact of ultra-low and negative interest rates), and institutional factors (including increased political attacks on central banks in Europe, Japan and the United States).
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While not big, the recent equity selloff has added to the (correct) sense that it is very hard for investors to secure high returns just from exposure to general market indices. As demonstrated again this year, it is a challenging environment for diversified, index-based buy and hold strategies. Good individual name selection and timely tactical repositioning have been – and will remain – much more important drivers of total return.
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What happens next to markets will remain sensitive to political developments, including the outcome of Tuesday’s US election and next month’s Italian referendum. And this phenomenon is by no means limited to 2016. Political risk will remain in play next year with a series of important elections in Europe. And all this in an environment in which, due to prolonged central bank activism, markets have been decoupled from underlying economic and corporate fundamentals.”
PRESIDENTIAL ELECTION AND THEREAFTER
During the recent past 4 months, the stock market encountered 3 situations/events, among others, that created heightened uncertainty, i.e., a huge upset in the U.S. presidential election on 11/8/16; a “dark” presidential inaugural address on 1/20/17; and the president’s first address to the U.S. Congress and Nation with a “presidential” tone on 2/28/17.
So how did the stock market respond? In spite of these and other events, the stock market indices - DOW, S&P 500 and NASDAQ - continued upward with strong gains as shown in the following table.
DAY Of DAY AFTER % Change DAY OF % Change DAY AFTER % Change
ELECTION ELECTION since INAUGURATION since PRES ADDRESS since
11/8/16 11/9/16 Election 1/20/17 Election 3/1/17 Election
DOW 18,332.74 18,589.69 1.4% 19,827.25 8.2% 21,115.55 15.2%
S&P 500 2,139.56 2,163.26 1.1% 2,271.31 6.2% 2,395.96 12.0%
NASDAQ 5,105.68 5,163.26 1.1% 5,555.33 8.8% 5,904.03 15.6%
What about specific stocks? For comparison purposes, I included Saul’s recent stock portfolio and some of the stocks that I either hold or have on my watch list. Since the 11/8/2016 election day to 3/1/2017, a vast majority of the stocks listed below not only realized price gains, but outperformed the DOW, S&P 500 and NASDAQ. Only a very few realized price drops. Further analysis for each stock listed below might be necessary in order to determine whether or not price gain or loss was attributable primarily to actual performance of corporate governance, guidance, business operations and fundamentals.
DAY Of DAY AFTER % Change DAY OF % Change DAY AFTER % Change
ELECTION ELECTION since INAUGURATION since PRES ADDRESS since
11/8/16 11/9/16 Election 1/20/17 Election 3/1/17 Election
DOW 18,332.74 18,589.69 1.4% 19,827.25 8.2% 21,115.55 15.2%
S&P 500 2,139.56 2,163.26 1.1% 2,271.31 6.2% 2,395.96 12.0%
NASDAQ 5,105.68 5,163.26 1.1% 5,555.33 8.8% 5,904.03 15.6%
SHOP 41.35 40.58 (1.9%) 50.09 21.1% 59.65 44.3%
ANET 86.07 85.40 (0.8%) 89.80 4.3% 120.64 39.5%
SBNY 122.03 131.01 7.4% 154.45 26.6% 162.72 33.3%
PAYC 45.68 42.31. (7.4%) 49.19 7.7% 55.71 22.0%
HDP 8.35 8.62 3.2% 9.00 7.8% 10.12 21.2%
AMZN 787.75 771.88 (2.0%) 808.33 2.6% 853.08 8.3%
SPLK 59.78 59.99 0.4% 53.78 (10.0%) 63.70 6.6%
TWLO 31.41 31.81 1.3% 28.38 (9.6%) 32.32 2.9%
UBNT 52.72 52.71 (0.0%) 58.55 11.1% 49.59 (5.9%)
LGIH 32.26 31.49 (2.4%) 29.34 (9.1%) 29.44 (8.7%)
URI 75.87 88.86 17.1% 111.19 46.6% 133.36 75.8%
MTW 4.08 4.66 14.2% 6.05 48.3% 6.28 53.9%
QRVO 50.96 51.78 1.6% 61.02 19.7% 67.85 33.1%
NTAP 32.49 33.19 2.2% 36.37 11.9% 43.01 32.4%
CF 24.34 26.48 8.8% 34.20 40.5% 32.15 32.1%
DVMT 49.68 49.37 (0.6%) 59.26 19.3% 64.08 29.0%
AMED 40.10 39.55 (1.4%) 46.35 15.6% 51.20 27.7%
SWKS 77.33 77.66 0.4% 88.67 14.7% 96.74 25.1%
AAON 28.35 29.80 5.1% 32.70 15.3% 35.30 24.5%
LAD 77.71 79.76 2.6% 99.41 27.9% 95.92 23.4%
HXL 46.27 47.73 3.2% 51.02 10.3% 55.63 20.2%
BRK-B 147.79 151.28 2.4% 160.21 8.4% 177.28 20.0%
DIS 94.38 94.64 0.3% 107.66 14.1% 111.04 17.7%
ANIP 50.82 55.27 8.8% 56.24 10.7% 59.80 17.7%
DHI 27.77 27.54 (0.8%) 28.31 1.9% 32.60 17.4%
LHCG 42.45 41.95 (1.2%) 46.24 8.9% 48.52 14.3%
NEU 396.71 400.69 1.0% 430.51 8.5% 441.18 11.2%
TJX 73.23 73.94 1.0% 75.49 3.1% 78.45 7.1%
VMC 119.73 131.55 9.9% 129.87 8.5% 124.38 3.9%
QCOM 68.27 67.88 (0.6%) 62.88 (7.9%) 57.01 (16.5%)
[Note: Company names are provided below at the end of this post]
Graphically, here’s a chart showing Saul’s top gainers - SHOP, ANET, SBNY, PAYC and HDP - substantially outperforming the S&P 500 for the 11/8/2016 - 3/1/2017 time period.
http://bigcharts.marketwatch.com/advchart/frames/frames.asp?..
Here’s the chart showing the top 5 gainers from my list - URI, MTW, QRVO, NTAP and CF - substantially outperforming the S&P 500 for the 11/8/2016 - 3/1/2017 period.
http://bigcharts.marketwatch.com/advchart/frames/frames.asp?..
My due diligence on corporate performance helps me narrow down my portfolio choices to a manageable level. Dealing with uncertainty demands vigilance, keeping myself as well-informed as possible. For example, I hold a basket of investments in health-related sectors where there currently exist heightened uncertainty about the fate of the ACA and any changes to Medicare. So far, there has been a lot of noise with empty talk that I’ve quickly filtered out; right now, I’m in “where’s the beef?” mode.
As always, conduct your own due diligence and decision-making.
Regards,
Ray
SHOP Shopify
ANET Arista Networks
SBNY Signature Bank
PAYC Paycom Software
HDP Hortonworks
AMZN Amazon
SPLK Splunk
TWLO Twilio
UBNT Ubiquiti Networks
LGIH LGI Homes
URI United Rentals
MTW Manitowoc
QRVO Qorvo
NTAP NetApp
CF CF Industries
DVMT Dell Technologies
SWKS Skyworks Solutions
AMED Amedisys
AAON AAON, Inc.
LAD Lithia Motors
HXL Hexcel
BRK-B Berkshire Hathaway
DIS The Walt Disney Company
ANIP ANI Pharmaceuticals
DHI D.R. Horton
LHCG LHC Group
NEU NewMarket
TJX The TJX Companies
VMC Vulcan Materials
QCOM QualComm