06/22/16   Bitter Election Rhetoric

Editor’s Corner

Ron Rowland

Fasten your seat belt; it’s going to be a bumpy ride.  The U.S. presidential election is 138 days away. It is already shaping up to be a nasty and bitter fight, with neither of the presumptive major-party candidates being shy when it comes to name-calling and mudslinging.  Some pundits may call it politics as usual, but it is already notable for being the election with the two most unfavorable candidates ever.

Both candidates currently have higher unfavorable ratings than favorable ones.  If this persists until Election Day, it will mean that more people will be going to the polls to vote against a candidate than for one.  Every election has candidates that various segments of the voting public view negatively.  Voting against someone has been around since the days of the Roman Senate, and I have often found myself in the voting booth not liking either choice.  However, this time around, the negativity is more pronounced than ever before.

The world will be watching us; but at the moment, there is another upcoming vote receiving global attention.  Tomorrow’s referendum on whether or not the United Kingdom should remain in the European Union has taken center stage.  As The Wall Street Journal pointed out today, even if the residents of the U.K. vote to stay, the European Union will never be the same.  The fact that it even came up for a vote has been a wake-up call for European politics.  “Obsessed with the idea of instant and total integration, we failed to notice that ordinary people, the citizens of Europe, do not share our Euro-enthusiasm,” European Council President Donald Tusk recently stated according to the article.

If the “leave” vote is successful, then uncertainty will reign supreme.  Although there is plenty of speculation about the potential impact of leaving, the simple fact is that no one knows all of the implications.  Today, Federal Reserve Board Chair Janet Yellen is delivering the second day of her semiannual testimony to congress on the country’s economic outlook and monetary policy.  She repeated that a vote to exit could have significant economic repercussions.

Assuming Europe survives, the world’s political attention will eventually shift back to the United States.  Unless a clear leader emerges, markets will remain jittery amid the uncertainty.  Even if the polls “determine” the winner long before November, the mudslinging will likely remain at high levels, along with the ambiguity of what the new administration will mean to the markets.  Yes, it’s going to be an unpleasant ride to November.

Investor Heat Map 6/22/16

Energy recaptured the top spot after relinquishing it to Utilities for a week, as the recovery in oil prices continues to give Energy a boost.  Investor nervousness has been providing support for Utilities, which is solidly in second place.  Telecom jumped from sixth to third and pushed Materials, Real Estate, and Consumer Staples all a notch lower.  In the bottom half of the rankings, Health Care slid two spots lower, allowing Industrials and Technology to move up.  Consumer Discretionary managed to rid itself of its negative momentum score and climb out of the basement, leaving Financials in last place.

The Small-Cap hold on the top three spots of the past two weeks has now been disrupted.  Small-Cap Value continues to sit at the helm, and Small-Cap Blend only slipped one position to third, but Small-Cap Growth was knocked from third to seventh.  As usual, the momentum changes among the style categories are relatively tame compared to the sector and global categories, but the narrower range of scores across the style categories can sometimes lead to dramatic changes in the relative order.  The large drop for Small-Cap Growth allowed Mid-Cap Value to ascend two places to second, Micro-Cap to move up a notch, and Mid-Cap Blend to transition from the lower to upper half.  Mid-Cap Growth moved ahead of Large-Cap Blend, resulting in all three Mid-Cap categories improving their standing this week.  Mega-Cap and Large-Cap Growth continue to lag the field.  The traditionally defensive large-capitalization categories are at the bottom, contradicting the somewhat defensive posture visible in the sector rankings.

Both Latin America and the U.K. made impressive moves this week.  Latin America jumped from seventh to second, after being on the bottom just two weeks ago.  With Canada extending its reign at the top, and the U.S. managing a fourth-place ranking, the Western Hemisphere categories now hold three of the top four spots.  The other big upside mover was the U.K., which zoomed from last to sixth today.  U.K. stocks have surged the past week, as polls there shifted toward a “stay” vote in tomorrow’s referendum.  The politically induced volatility caused a short-term collapse for U.K. stocks in early June, but they have fully recovered over the past week.  Emerging Markets edged higher, thanks to strength in Latin America and the U.S.’s two-spot decline.  Other categories falling in the rankings included World Equity, Pacific ex-Japan, China, and the Eurozone.  Five of the categories that moved to red a week ago have now retuned to green.  The last remaining holdout is the Eurozone, which has fallen to last place.



The charts above depict both the relative strength and absolute strength of various market sectors, styles, and geographic locations on an intermediate-term basis. Each grouping is sorted (top to bottom) by relative strength. The magnitude of the displayed RSM value is a measure of absolute strength, which is our proprietary method of measuring and reporting the intermediate-term strength as an annualized value.


“The intensity of the feeling is stronger now,
this antithetical feeling toward the other party.”

Carroll Doherty, director of political research at Pew Research Center


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