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.
Overview of market resilience ratings for stock, bond and commodity markets for the next few weeks. #marketResilienceIndexes #marketOutlook #InvestmentResearch