Now that the dust has settled from Tuesday's midterm elections, with Republicans taking control of the U.S. House and the Democratic majority narrowing in the Senate, the burning question is: What does this mean for advisors?
In an SEI Quick Poll released Tuesday nearly half of financial advisors reported they believed the midterm elections had created “fear and uncertainty” among their clients. The biggest issues impact investors, advisors said, were continued unemployment, the potential for a double-dip recession, pending tax changes and budget deficits. The survey, which was conducted by the SEI Advisor Network, was completed by 238 financial advisors during the two weeks prior to the November elections.
Yet now that the elections are over- and advisors can breathe a small sigh of relief- the challenge becomes: Can the Republicans and Democrats move to the center?
“It will be interesting over the next quarter or six months to see if the two sides govern collectively or whether we will have a fractured government over the next two years,” said Geoffrey Bobroff of Bobroff Consulting in East Greenwich, R.I., in phone interview on Wednesday.
While a “divided” government will not fundamentally change the outlook for the stock market, it could pose challenges for further market and economic recovery, said Robert C. Doll, Chief Equity Strategist for Fundamental Equities at BlackRock, Inc., in a report released on Wednesday morning.
“When it comes to market performance, fundamentals historically have proved to be far more important than politics,” Doll said. “However, this year, the election results and the political backdrop probably matter more than they usually would. If the current government is not able to come together and address the serious short- and long-term economic problems facing the country, these problems will almost certainly escalate.”
With modest levels of economic growth over the long term, corporate earnings should continue to make gains and markets should move higher. “Valuations appear attractive to us and we expect the prevailing economic environment to be bumpy, but conducive to decent market performance going forward,” he said. “Nothing that has happened on the political scene has changed any of that.”
The truth is that the midterm election results were as expected and that expectation was built into the current marketplace, said W. Christopher Maxwell, a managing partner at the Rock Hall, Md., wealth management firm Conestoga Capital Advisors LLC, in a phone interview on Wednesday.
He said that he believes the election results increase the likelihood that tax rates will remain at 2010 levels, which will give advisors the chance to figure out how they really want to deploy their clients’ portfolios.
Yet there are still a lot of unknowns around healthcare and financial reform, added Maxwell. “But I feel relieved there is one less variable out there,” said Maxwell.
Bobroff suggests that advisors focus on allocating assets for clients, which is ultimately what clients are playing them for. “This is not a time to crawl into the corner and try to ride the storm out,” he said. “We’re going to have turbulent markets and the question becomes can you ride your clients through the markets with the least disruption?”