Quick Thoughts: Market Volatility, Sectors, and Election-Stimulated Opportunities

Head of Equities Stephen Dover and Franklin Equity Group’s Grant Bowers discuss potential US equity market impacts from the US elections.

Stephen H. Dover, CFA

Stephen H. Dover, CFA Head of Equities

Grant BowersPortfolio Manager, Research Analyst

Ahead of November’s US elections, our Head of Equities Stephen Dover and Franklin Equity Group’s Grant Bowers break down potential US equity market impacts. They also give their take on a potential “blue wave,” and share four areas of bipartisan support with nuanced differences, they believe US voters and investors are likely to focus on.

Market phases and elections are somewhat predictable cycles—headwinds, tailwinds, and uncertainty in the outcome are parts of both processes. While elections occur like clockwork (in the United States), both cycles can affect each other in unpredictable ways. I recently had a wide-ranging discussion with Franklin Equity Group Portfolio Manager Grant Bowers that covered potential market impacts from the election, the prospects for infrastructure spending, and how long-term investors might navigate volatility:

  • It was overall, a very strong economy until the pandemic began. COVID-19’s effects and its rates of infection, disease, and mortality have also created uncertainty globally across markets.

  • We believe a split Democratic and Republican-led government would actually be quite good for markets. The prospects of a “blue wave1,” we believe for investors, would be concerning as we could see a very dramatic shift in government posture and policies toward markets, businesses, as well as towards regulations.

  • Both Democrats and Republicans agree on: infrastructure spending, China trade and intellectual property issues, and bringing supply chains back for domestic production. However, we believe there are nuanced differences, including what “infrastructure” is, and how technology and 5G may be part of voters’ and investors’ considerations.

  • Technology has become a fundamental part of infrastructure, and how the United States and other countries project power, we believe, and technology companies are a big part of that global power structure.

As an investor, the most important cycle to watch for is your own life and its cycles, and we believe in understanding your investment horizon and thinking longer term. Elections and market cycles come and go; however, they may offer opportunities to purchase stocks at discounted prices relative to their intrinsic worth. For more, watch my “Quick Talks: Sectors and the US Elections” with Grant Bowers here:

ENDNOTES

  1. Source: The Washington Post. “Was it a blue wave or not? That depends on how you define a wave,” November 13, 2018.

What Are the Risks?

All investments involve risks, including possible loss of principal. Stock prices fluctuate, sometimes rapidly and dramatically, due to factors affecting individual companies, particular industries or sectors, or general market conditions. The technology industry can be significantly affected by obsolescence of existing technology, short product cycles, falling prices and profits, competition from new market entrants as well as general economic conditions. Investments in fast-growing industries, including the technology and health care sectors (which have historically been volatile) could result in increased price fluctuation, especially over the short term, due to the rapid pace of product change and development and changes in government regulation of companies emphasizing scientific or technological advancement or regulatory approval for new drugs and medical instruments. Investments in infrastructure-related securities involve special risks, such as high interest costs, high leverage and increased susceptibility to adverse economic or regulatory developments affecting the sector.