The biggest highlight from the Republican and Democratic conventions this month may be what happens to your investments. Election years have been good for the stock market, as long as investors are able to stomach the volatility that comes with them. ‘The election is sort of on a simmer mode now I’d say, (with) the Republican convention this week the Democratic convention in a couple of weeks. Markets won’t really start to pay attention until September or so, so there’s a lot of catalysts out there for that potential volatility,’ explained John Cannally, economist and strategist with LPL. Cannally said he wouldn’t be surprised to see the market swing by ten percent in either direction between now and November 8th. Election years historically have been a positive for Wall Street. Year-end gains have averaged 10%, with the exception of 2008 when the country was in the midst of the Great Recession, according to LPL Financial. Corporations will be casting a vote of confidence in their businesses, according to Cannally, who believes capital spending will increase during the second half of 2016. ‘They’ve done a little bit of hiring, they’ve paid down some debt. Now what you’d like to see them do is invest a little bit more,’ he said. In its recently published midyear outlook, LPL recommends that investors should now consider adding cyclical stocks, emerging market equities, and master limited partnerships to their portfolios. LPL recommends exiting positions in defensive stocks. For the rest of this year, LPL has reduced its forecast for Federal Reserve rate increases from two to one, and projects U.S. economic growth ranging from 2 to 2.5%. Cannally expects a pick up in inflation in the fourth quarter, which should lead the Fed to get more aggressive on rates next year.
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