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Weekly Trends February 26, 2016
Weekly Trends February 26, 2016
Youre Fired!
The equity markets hate uncertainty, and thats exactly what we have in the
current US presidential primaries. But with Super Tuesday on March 1, we
should have a lot more clarity around the Republican and Democratic
Presidential candidate.
Historically, US equities have done ok during election years, with the S&P 500
Index (S&P 500) returning 6.1% on a price return basis. However, this is below
nd
the average of 8.7% for all years, and returns have been poor for 2 term
nd
Presidents. In US election years for 2 term Presidents, the S&P 500 has
returned -6%. However, its important to note that this average includes the
2000 and 2008 meltdowns. If we exclude 2008 (-38.5%) under George W Bush,
then the average return increases to 2.8%. Therefore, we believe the bears may
nd
be overplaying this market statistic of 2 term Presidents.
From a policy perspective we believe the key issues in the election will be the
economy, healthcare, environment and deficit. With the Republicans controlling
both the House and Senate, a Republican Presidential win would be huge for the
right, and likely result in dramatic policy changes following two terms of a
Democratic President.
There is a lot at stake for both the markets and policy in this election. We expect
market volatility to remain elevated until we get greater clarity on the party
leaders. However, as the frontrunner and possible winner of the US Presidential
election emerges, we expect the equity markets to stabilize and begin to move
higher.
Weekly count
1,200
32
r = .70
26
800
23
600
20
400
17
S&P 500
-4.1
Russell 2000
-8.8
MSCI World
-6.5
MSCI Europe
-10.7
MSCI EAFE
-9.4
MSCI EM
-7.4
-15
Canadian Sectors
-10
-5
Weight
Recommendation
Consumer Discretionary
6.7
Market weight
Consumer Staples
4.7
Market weight
Energy
18.3
Market weight
Financials
38.1
Market weight
Health Care
3.0
Market weight
Industrials
8.0
Overweight
Technology
3.2
Overweight
Materials
9.5
Underweight
Communications
5.9
Overweight
Utilities
2.5
Underweight
Level
Reading
Technical Considerations
S&P/TSX Composite
12,817.5
50-DMA
12,622.7
Uptrend
200-DMA
13,694.7
Downtrend
53.9
Neutral
16,000
15,000
14,500
14,000
13,500
13,000
12,500
12,000
11,500
0
27-Feb
-0.5
15,500
29
1,000
200
-1.5
RSI (14-day)
S&P/TSX Comp
14
11,000
S&P/TSX
50-DMA
200-DMA
11
27-Apr
27-Jun
27-Aug
27-Oct
27-Dec
Weekly Trends
Youre Fired!
Things are starting to heat up in the US presidential primaries. Donald Trump recently
won in South Carolina and Nevada, widening his lead in the Republican race.
Following the South Carolina primary, the field narrowed with Jeb Bush suspending
his campaign. Were this Donald Trumps reality show The Celebrity Apprentice, Trump
would surely have relished the opportunity to use his coined phrase, Youre fired to
Jeb Bush, given their clear disdain for each other. On the Democratic side, Hillary
Clinton gained momentum with a win over Barry Sanders in the Nevada caucus.
Currently, Hillary has 502 delegates (2,383 needed) to Sanders 70. While both Clinton
and Trump increased their respective leads, Tuesday March 1, or Super Tuesday will
likely be the defining moment for this election, with 11 states holding primaries. With
the run to the White House picking up, we thought it would be timely to discuss the
market implications of US Presidential elections and highlight the key issues at stake.
Let us be very clear at the outset that we are not endorsing any political party, and
are solely looking at the equity market implications from a quantitative or historical
context. With that said, we analyzed US equity returns during elections years, with
the key findings outlined below:
10%
5%
0%
-5%
-10%
S&P 500 During 2nd Term Presidental Yrs ('52, '60, '88, '00, '08)
1
12
23
34
45
56
67
78
89
100
111
122
133
144
155
166
177
188
199
210
221
232
243
254
-15%
Yearly Returns
Combination (Pres/House/Senate)
DDD
DRD
DRR
RDD
RDR
RRD
RRR
Trading Days
Source: Bloomberg, Raymond James Ltd. Note D represents Democrat and R represents Republican. Returns are since 1929.
Average %
9.3%
13.6%
13.3%
7.1%
3.7%
-18.2%
-1.2%
Count
34
4
9
20
8
2
10
Weekly Trends
Key Issues
Below we discuss the key political issues in this US presidential election. Again, our
aim is to be impartial and unbiased, as we attempt to summarize the salient
positions of the parties and leading candidates. They include:
There is a lot at stake for both the markets and policy in this election. We expect
market volatility to remain elevated until we get greater clarity on the party leaders.
However, as the frontrunner and possible winner of the US Presidential election
emerges, we expect the equity markets to stabilize and begin to move higher.
US Household Income Is Stagnant
$60,000
(in billions)
$20,000
$18,000
$55,000
$16,000
$14,000
$50,000
$12,000
$10,000
$45,000
$8,000
$6,000
$40,000
$4,000
$2,000
$0
'68
'71
'74
'77
'80
'83
'86
'89
'92
'95
'98
'01
'04
'07
'10
'13
'50
'55
'60
'65
'70
'75
'80
'85
'90
'95
'00
'05
'10
'15
Weekly Trends