Greed, fear and the U.S. election: make your portfolio president-proof

OTTAWA – The U.S. election promises to be a wild ride to Nov. 8 and stock markets could be taken along for the volatile trip to voting day.

With that in mind, experts are urging investors to resist falling prey to emotion and see past the short term while remaining focused on their plans.

“You can’t kind of go from greed to fear to greed to fear,” says Chris Catliff, CEO of BlueShore Financial.

“You need to keep it in check.”

Britain’s surprise vote in June to leave the European Union sent stock markets into a tizzy. An upset win by Republican presidential candidate Donald Trump, despite polls suggesting only a slim chance of victory, could result in similar convulsions.

But people should remember that while stock markets sank in the wake of the so-called Brexit vote, they also bounced back in the weeks that followed. Those who sold their holdings in the immediate aftermath missed out on the rebound.

Those who are nervous about the short term moves on the market may have too much risk in their portfolios.

Catliff says the Canadian dollar and peso have rallied when Hillary Clinton, the presidential nominee for the Democrats, has done well in the campaign.

Trump, on the other hand, has injected a little more uncertainty into the markets when he performs well, Catliff says.

“I think that’s because people haven’t figured him out yet necessarily,” he says.

“He is a bit whimsical in his policy thoughts, they’re not well thought out and he doesn’t really have a guiding ideology maybe like Clinton does.”

Stan Wong, portfolio manager at Scotia Wealth Management, says investors need to remember that the U.S. is Canada’s largest trading partner and the largest economy in the world.

“So anything that happens in the U.S., they are the elephant,” he says. “If they move, its going to affect us.”

In a report to clients, Scotia Wealth Management said a Republican win may have mixed results for Canada, initially striking a positive note, before problems creep up in the medium- to long-term as anti-immigration, anti-trade and U.S. government debt weigh on the U.S. economy.

The report said a Democratic win would be a relatively status quo scenario.

Wong says Trump favours the energy producers in the U.S. and that could spur new investment spending on pipelines and drilling.

When it comes to Clinton, he says, health care has been under a microscope and may continue to face scrutiny, which could affect some companies in the U.S. and Canada. Clinton has said drug companies should have to explain price increases and show what benefits and value have been added.

“It looks like financials might be under the microscope as well with someone like Clinton,” Wong says.

Shailesh Kshatriya, director of Canadian strategies at Russell Investments Canada, notes both are promising fiscal stimulus in the form of infrastructure spending that should be good news for economic growth.

“It does seem like fiscal policy will likely be a bit of a tailwind for growth in the U.S. and that’s not a bad thing if you’re invested in equities,” he says.

At the end of the day, Kshatriya says the markets will ultimately react to fundamentals over, in this case, politics.

“Politics can cause short-term noise and anxiety, but over the longer term I think the market will react more to the fundamentals,” he says.