How Will Today’s Economic Uncertainty and the Upcoming Election Affect the Market?

With the election less than 4 weeks away, uncertainty hangs over the U.S. markets. Yet the S&P 500 was up more than 5% for the quarter and more than 27% for the last 12 months. To the surprise of many, the U.S. stock market is close to all-time highs.¹ Many foreign countries had a stronger third-quarter stock market performance than we did.

Even though the debt crisis in Europe is unresolved and global economic activity has weakened, there were many surprises. Ireland was up 6%. Italy was up 7%. Spain was up over 9%, and Greece was up 22% for the quarter.² Once again the markets proved to be unpredictable.

Most of us are concerned with the year-end fiscal cliff. The country is polarized over government fiscal policy and political candidates. Yet history indicates that elections cannot be used to predict with any certainty what the markets will do. One popular belief says that an election year should be one of the best for investors. Indeed, since World War II, the S&P 500 Index has risen in 12 out of the 16 election years. However, that’s about the same percentage that the market has risen in all years during the same time period. It appears that future outcomes are typically already priced into the markets because everyone else has the same hopes and concerns that you and I have.

We expect continued market volatility, no matter who is elected. Tough financial decisions are needed no matter what. We recommend our investors remain globally invested. Each quarter we look for rebalancing opportunities to take advantage of market fluctuations, whether positive or negative, to help support a successful long-term return. Short-term fluctuations must be tolerated to avoid the hazards of seeking elusive safe havens or attempts to avoid temporary declines.

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1. The S&P 500 was up 5.8% for the quarter and up 27.3% for the last 12 months, as reported in the Wall Street Journal: Money & Investing, Monday, October 1, 2012
2. Based on the Dow Jones Global Indexes, The Wall Street Journal: Markets Review & Outlook: Third Quarter Market Data, Monday, October 1, 2012