UpFront | Published in November 2016

Increased Market Volitility

Many Americans view the election as a source of uncertainty

By PLANSPONSOR staff | November 2016
Art by Ding Ding Hu
Americans and investment managers, in two pre-election surveys, indicated that they expect the U.S. elections to increase market volatility and their investment choices.
BlackRock’s Investor Pulse Survey of 1,663 Americans, including 1,440 investors, found that nearly two-thirds—63%— said the election had influenced their investment choices in the past year. Similarly, 59% said their personal savings and investments would influence whom they vote for.
“It’s clear that many Americans view the election as a source of uncertainty, making them less comfortable about investing,” says Robert Kapito, president of BlackRock Inc.
Regardless of which presidential candidate wins, the survey found, 71% of Americans believe market volatility will continue to rise. Fifty-two percent said such volatility was increasing their interest in seeking professional advice.
Also either way, Americans said they would up their equity and bond exposure, with 16% planning to increase stock allocations no matter which party takes the White House; bond allocations would increase for 13% of Americans with a Democrat win and for 12% following a Republican win.
Sixty-two percent of Americans said volatility makes retirement prospects more uncertain, with women feeling more tentative than men—65% vs. 58%.
For their part, investment managers surveyed by Northern Trust Asset Management said they expect market volatility to rise as November 8 approaches, and many anticipate modifying their portfolios once Americans decide who the new president will be.
Expectations of market volatility are at near-record levels, with 78% of respondents bracing for that occurrence over the next six months. This was the second-highest reading since Northern Trust’s first survey, in the third quarter of 2008. Eighty-nine percent said the approaching election could add to market volatility.
Asked which of three U.S. outcomes would have the biggest impact on global equity markets, 72% said a victory by Donald Trump. Twenty-seven percent said the Democrats winning a majority of seats in the House of Representatives—and only 1.4% said Hillary Clinton’s election as president.
While 54% do not plan to change their portfolios after the election outcomes are known, 24% said they will probably revise some security holdings, 15% said they will make sector or geographic allocation changes, and 8% said they might reconsider the risk aversion in their portfolios.
Nearly half, 48%—an all-time high—said U.S. equities are overvalued, while 13%—an all-time low—said U.S. equities are undervalued. A relatively large portion of managers—23%—are holding cash levels above their historic norms, and only 6% have become less risk averse over the past three months, another all-time low. At the same time, 23% of managers increased their exposure to commodities in the second quarter. —Amanda Umpierrez and Lee Barney