Since the recent August 5th low the FT Wilshire 5000 has returned 12.6% and more importantly has established a new record high. Given the US election is just over 2 weeks away this indicates a lack of concern (indifference) around the scope for the election to create volatility.
… the rally has seen an absence of any pronounced style skew
Exhibit 1 compares the performance of the headline FT Wilshire 5000 to the large v small, growth v value and equal weighted relative returns. This profile contrasts the style skew that was driving the market prior to August to the agnostic profile over the last few weeks. In this regard it appears that investors are reflecting election uncertainty via removal of style bets rather than aggregate market exposure.
Exhibit 1: The election run in has seen investors take style bets off the table
Typically, markets rally in the aftermath of the election – with two notable exceptions
Exhibit 2 shows the returns for the market over the period spanning the election to inauguration since 1980. With an average return of 9.2% (excluding the 2000 and 2008 elections) the market indifference to the outcome on November 5th is understandable. The two occasions that markets experienced post-election volatility were 2000 when the ‘hanging chads’ generated uncertainty for a month and in 2008 where the GFC dominated market sentiment.
Exhibit 2: Typically markets rally through to inauguration day
The key headwind for the democrats has been the absence of economic ‘feel-good’
With the equity market hitting record highs and the economy and labour market appearing robust it seems almost paradoxical that a key feature of the election campaign has been the narrative around the lack of economic feel-good. The best prism to display this is via the delivery of real household net worth (Exhibit 3). The problem for the democrats is that the Biden administration has seen elevated inflation deliver a modest 3.6% real return in household net worth. By contrast the Trump presidency delivered a 28.4% growth in real household net worth.
Exhibit 3: The feel – good factor expressed as growth in real household net worth
Source: Wilshire Indexes, Factset. Data as of October 15, 2024.
