Post-Election Outlook: Where Investors Will Put Capital to Work
Today's uncertain investors
Market uncertainty is at unusually high levels, as investors, faced with numerous unknowns, are unsure what to do. As we enter November, investor uncertainty, measured by the percentage of neutral readings from the AAII Investor Sentiment Survey, is above 41%. To put that in context, the historical average from 1987 to today is just above 30%. And earlier this year we reached an all-time high of 52%.
This high uncertainty is evident in investment trends and strategies. Cash was the number-one asset allocation made by individual investors this year, with 43% of investors reporting moves to cash in 2016. Fund managers, too, have gone to cash, with fund managers' cash levels at 15-year highs at the end of October. These cash balances are similar to what we saw before the Brexit vote, and the last time we reached these levels was in November of 2001, shortly after the 9/11 attacks.
While many uncertain factors will persist in 2017, there is one factor contributing to uncertainty that will be gone next week, and bring investor uncertainty levels down as a result.
Tomorrow's bulls and bears
Investor uncertainty will come down following the U.S. election. And it doesn't matter who gets elected; simply knowing who the next president is will be enough to significantly reduce market uncertainty. Following the 2012 election, uncertainty dropped from above 30% in October to nearly 20% in mid-November, half of what it is today.
This drop in uncertainty will come from investors getting either more bearish or more bullish based on the election outcome. Either way, we expect to see investors start to put that capital to work for 2017. And with all the cash on the sidelines, opportunity lies in getting ahead of the capital flows.
So the multi-billion-dollar question is: where does all that capital go?
Read more in the latest edition of my quarterly newsletter, "Signal or Noise?"
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Click the “access exclusive commentary” button to read the full newsletter.
Market uncertainty is at unusually high levels, as investors, faced with numerous unknowns, are unsure what to do. As we enter November, investor uncertainty, measured by the percentage of neutral readings from the AAII Investor Sentiment Survey, is above 41%. To put that in context, the historical average from 1987 to today is just above 30%. And earlier this year we reached an all-time high of 52%.
This high uncertainty is evident in investment trends and strategies. Cash was the number-one asset allocation made by individual investors this year, with 43% of investors reporting moves to cash in 2016. Fund managers, too, have gone to cash, with fund managers' cash levels at 15-year highs at the end of October. These cash balances are similar to what we saw before the Brexit vote, and the last time we reached these levels was in November of 2001, shortly after the 9/11 attacks.
While many uncertain factors will persist in 2017, there is one factor contributing to uncertainty that will be gone next week, and bring investor uncertainty levels down as a result.
Tomorrow's bulls and bears
Investor uncertainty will come down following the U.S. election. And it doesn't matter who gets elected; simply knowing who the next president is will be enough to significantly reduce market uncertainty. Following the 2012 election, uncertainty dropped from above 30% in October to nearly 20% in mid-November, half of what it is today.
This drop in uncertainty will come from investors getting either more bearish or more bullish based on the election outcome. Either way, we expect to see investors start to put that capital to work for 2017. And with all the cash on the sidelines, opportunity lies in getting ahead of the capital flows.
So the multi-billion-dollar question is: where does all that capital go?
Read more in the latest edition of my quarterly newsletter, "Signal or Noise?"
---
Click the “access exclusive commentary” button to read the full newsletter.
