Be Portfolio Correct, Not Politically Correct With Your Investments

It is hard to believe, but May is now in the books. The S&P500 [SPX] for the month of May was up 1.07%. If you asked most people they would have bet dollars to doughnuts that after the huge pre-Memorial Day week sell-off the SPX would have been in the red for the month. That was not the case, as May finished in the green and now we have put together two consecutive months of gains for the SPX.  This marks the longest monthly winning streak since we rose three consecutive months through October of 2007.

For the year through the end of May, the SPX is off 4.63% but was far worse at its extreme bottom, off about 14.5%. All told we have been in a fantastic environment for trading and stock picking. The buy and hold crowd have been hurt as they continue to hold laggards such as financials and retails and suffer from the psychological effects of the January and March slides.

I believe that the rest of the year will be no different. It won’t be easy. The biggest factor weighing over the markets as we head into the summer will not be housing or the consumer or the financials. It will be the election.

It seems to me that the markets right now are ignoring the general election and are focused more on the Obama – Clinton fight. This issue may be a source of recent market volatility. Clearly the markets want to get Obama out of the way sooner rather than later. However that might now happen to the detriment of stock prices.

Once the two major parties conclude their quadrennial conventions then we will have a much clearer picture as to who might control the White House. A McCain victory is market friendly. An Obama victory is going to be a bear’s dreams come true. Clinton is somewhere in between as she might have to concede to more centrist economic views to defeat first Obama and then McCain.

If you let your political views cloud your investing then you will miss opportunities and pitfalls in the financial markets. The markets could care less about wars and social programs. Let’s be very clear about something. The financial markets are concerned about two things – economic growth and earnings. So learn to separate your portfolio from your politics. Should you fail to do so, then you might be politically correct but portfolio incorrect.

Comments

[bbowen7:]

The market dislikes uncertainty. As the focus changes from Obama-Clinton to Obama-McCain, there will begin to emerge a "this really will make a difference" understanding, and it looks like this will most likely be a close race. To me, that suggests that the market will be very cautious (e.g. flat to down, at least in the U.S.)
RightinSanFrancisco.co...

2008 Jun 03 11:29 AM