The philosophy of Focused 15 Investing is to make
bets based on the resilience of the markets rather than on the outcome of
future events. Resilience is easier to measure and evaluate systematically than
varied future events. This week’s presidential election is a prime example of
how that philosophy can play out. Many investment strategists expected the
markets to decline after a Trump victory (and to rise after a Clinton victory).
My work suggested markets would trend higher regardless of the winner. On
November 2, I wrote:
For
the week of November 7, US stocks have a resilience rating of 2, up from 1 the
prior week. This higher rating is because the Micro Market Resilience Index MRI
has turned positive and is now gaining strength. This is an important
shift and could lead to higher prices, barring strongly negative news or
events.
The
effective date for this rating is 11/7/2016. The US presidential election will
be held the following day. Resilience will be higher that week regardless of
which candidate wins. Some observers will say that the markets are rendering a
verdict on the winner, but my statistics suggest that it is simply the
beginning of a normal short cyclical move providing support for higher prices.
Since the market’s close last Friday, the Dow
Jones Industrial Average is up about 4%. I believe that I would be saying
essentially the same thing if Clinton had won. The magnitude might be more or
less, but I believe it would still be positive.
Looking forward, the market may decline and give
back some of these gains. However, the positive trend is likely to continue.
Many of the major stock markets around the world are experiencing greater
resilience, not just the US markets. This also would have taken place in the short
term, even if Clinton had won.
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Overview of market resilience ratings for stock, bond and
commodity markets for the next few weeks. #marketResilienceIndexes
#marketOutlook #InvestmentResearch
