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Foster Denovo|News & opinion|Opinion|Market Briefing – 07th October 2020

Market Briefing – 07th October 2020

The news that Donald Trump and his wife have been positively diagnosed with Covid-19 will certainly continue to dominate news reports for days, perhaps even weeks.

Donald J Trump, 45th US President Drive by on 4th October 2020
Leaving hospital on 5th October 2020

Debate will likely increase in the news as he has now been discharged from hospital. Whatever opinions there are of Trump’s Covid experience, news of this nature creates something that stock markets detest – uncertainty. This uncertainty is also potentially increased due to the 2020 US Presidential election being only 4 weeks away, and the unknown factors caused by this extraordinary turn of events.

Looking back at how previous significant non-political events have impacted a president, and how markets have reacted, may provide insight regarding any uncertainty and the investment volatility, or risk, that may come after.

November 1963 – Kennedy assassination

Trump’s Covid experience is clearly nowhere near as severe as the events in Dallas, Texas on 22nd November 1963. However, drawing on the market reactions to that tragic day may provide parallels about market reactions to shock events such as Donald Trump’s diagnosis with Covid 19.

The earthshattering and history altering events that occurred that Friday would have geopolitical impacts for decades.

John F Kennedy, 35th US President;
Jackie Kennedy, US First Lady;
John Connally, Texas Governor; and
Nellie Connally, Governor’s wife, minutes before Kennedy’s assassination at 12:30pm Central Standard Time(6:30pm in the UK)

It was also the first major historical event that caused real-time disruption in the markets because television news networks across the world reported live updates from Dallas.

Before those tragic incidents occurred on that Friday, the Dow Jones Industrial Average(1) was at 732.65 points(2). For comparison, the day before Trump entered hospital, 1st October 2020, the Dow Jones(1) was at 27,816.80 points(3).

The S&P 500(4) on 22nd November 1963 was at 71.62 points(5). For comparison, on 1st October 2020 the S&P 500(4) was at 3,380.80(6).

How did both markets react to the Kennedy assassination? It took just one business day for both the Dow Jones(1) and S&P 500(4) to be back to where they were on the day before JFK’s assassination(7).

March 1981 – Reagan assassination attempt

Ronald Reagan, 40th US President, minutes before assassination attempt at 2:27pm Eastern Standard Time
(7:27pm in the UK)

The New York Times of 31st March 1981 said, ‘News of the assassination attempt broke around 2:30 P.M., when the Dow Jones industrial average was ahead 6 points. The first reports stated that the President had been shot at, though not hit, but that his press secretary, James S. Brady, had been wounded. At that point there was little reaction in stock prices.

However, selling [on the Dow Jones] became pronounced shortly after 3 P.M. when it was announced that the President had also been wounded. At 3 P.M. the blue-chip barometer was up only 2.52, but at the time of the early closing 17 minutes later it was down 2.62, to 992.16. Gain Expected to Resume.’(8)

How did the Dow Jones react to the attempted assassination of Reagan? As stated, just before the news reached the Dow Jones that Reagan had been shot, the index was up 2.52 points. When the markets closed – albeit caused by the assassination attempt – it was down only 2.62 points. Also note the end comment of the New York Times article… ‘Gain Expected to Resume,’ suggesting markets would open positively the following day. Although 1981 saw the Dow Jones fall over 9% during the entire year(9), caused mainly by the early impacts of Reagan’s economic policies rather than the shooting, 1982 saw it rise by over 19%(9).

US President line of succession
One of the reasons that perhaps contribute to the apparent lack of market impact surrounding the presidential events mentioned above – including the current one – is the US Presidential line of succession.

Article 2, Section 1, Clause 6 of the US constitution(10) puts in place a strict line of succession if the President and then Vice President cannot ‘discharge the powers … of the … Office…’ (10). The following people – in the order stipulated – would assume the Presidency:

⇒ Speaker of the House of Representatives

Nancy Pelosi (Democrat)

then…
⇒ Senate president pro tempore

Chuck Grassley (Republican)

then…
⇒ Cabinet members,
starting with the Secretary of State

Mike Pompeo ( Republican)

 

So how did markets react to Trump’s hospitalisation? Before Trump entered hospital, as cited above, the Dow Jones(1) was at 27,816.80 points(3) on 1st October 2020; on 2nd October 2020 it was at 27,682.81(3), down 133.99 points, a drop of under 0.5% on the day.

As also cited above, the S&P 500(4) was at 3,380.80(6) on 1st October 2020; on 2nd October 2020 it was at 3,348.44(6), down 31.56 points, a drop of under 1.00% on the day.

A drop in the ocean.

Don’t focus on short-term news events
Alan Abelson, a former editor of Barron’s magazine(11), made huge waves by writing a belligerent, yet intellectual stock market column, that denounced Wall Street and routinely shook share prices.

Regarding listening to market news frequently, he said, “Do you know what investing for the long run, but listening to market news every day is like? It’s like a man walking up a big hill with a yo-yo and keeping his eyes fixed on the yo-yo instead of the hill.”

No matter how serious the news event, such as Trump’s hospitalisation and subsequent discharge, where investing is concerned, short-term events should be ignored.

What should this tell you?
No matter how short-term shock events impact markets, whilst remembering that “past performance is no guide to future returns”, investors should ignore short-term events but rather diversify across individual stocks and across different asset types (i.e. bonds as well as equities, etc.), across geographical jurisdictions (e.g. globally), across investment styles (i.e. active management and passive investing) and across different investment philosophies (i.e. growth and value).

While individual stocks and markets will continue to go up and down, smart diversification across assets, geographical jurisdictions, styles and philosophies can help investors minimise their risks. Although it does not guarantee against loss, smart diversification is the most important component of reaching long-range financial goals while minimising risk.

However, remember that no matter how diversified a portfolio is across asset types, geographical jurisdictions, investment styles and philosophies, risk and reward do typically go hand-in-hand and as such, risk can never be eliminated completely. It is also important to remember that we very often have a long-term investment time horizon.

As we have said before, we will continue to monitor the current financial situation and keep you notified of any changes that are made. Please seek professional financial advice if you wish to discuss your financial situation further.

Sources

  1. Dow Jones – The Dow Jones Industrial Average (DJIA), also known as the Dow 30, is a stock market index that tracks 30 large, publicly-owned blue chip companies trading on the New York Stock Exchange (NYSE) and the NASDAQ. The Dow Jones is named after Charles Dow, who created the index back in 1896 along with his business partner Edward Jones.1 When reporters on television networks say the phrase “The market is up today,” they are generally referring to the Dow –
    https://www.investopedia.com/terms/d/djia.asp
  2. https://www.businessinsider.com/market-reaction-disasters-us-history-2012-7?r=US&IR=T#jfk-assassination-10
  3. https://www.spglobal.com/spdji/en/indices/equity/dow-jones-industrial-average/#overview
  4. S&P 500 – The S&P 500 or Standard & Poor’s 500 Index is a market-capitalisation-weighted index of the 500 largest U.S. publicly traded companies. The index is widely regarded as the best gauge of large-cap U.S. equities – https://www.investopedia.com/terms/s/sp500.asp
  5. https://www.businessinsider.com/market-reaction-disasters-us-history-2012-7?r=US&IR=T#jfk-assassination-10
  6. https://www.spglobal.com/spdji/en/indices/equity/sp-500/#overview
  7. https://www.businessinsider.com/market-reaction-disasters-us-history-2012-7?r=US&IR=T#jfk-assassination-10
  8. https://www.nytimes.com/1981/03/31/business/stocks-close-off-a-bit-in-session-cut-short-by-reagan-shooting.html
  9. https://www.macrotrends.net/1319/dow-jones-100-year-historical-chart
  10. “In Case of the Removal of the President from Office, or of his Death, Resignation, or Inability to discharge the Powers and Duties of the said Office, the Same shall devolve on the Vice President, and the Congress may by law provide for the Case of Removal, Death, Resignation or Inability, both of the President and Vice President, declaring what Officer shall then act as President, and such Officer shall act accordingly, until the Disability be removed, or a President shall be elected.”. https://constitution.congress.gov/browse/article-2/section-1/clause-6/
  11. https://www.newsbreak.com/people/alan-abelson

This publication is marketing material. It is for information purposes only. This statement is for the sole use of the recipient to whom it has been directly delivered by their Foster Denovo Partner and should not be reproduced, copied or made available to others. The information presented herein is for illustrative purposes only and does not provide sufficient information on which to make an informed investment decision. This document is not intended and should not be construed as an offer, solicitation or recommendation to buy or sell any specific investments or participate in any investment (or other) strategy. Potential investors will have sought advice concerning the suitability of any investment from their Foster Denovo Partner. Potential investors should be aware that past performance is not an indication of future performance and the value of investments and the income derived from them may fluctuate and they may not receive back the amount they originally invested. The tax treatment of investments depends on each investor’s individual circumstances and is subject to changes in tax legislation.

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