The advent of a new year ultimately brings a thousand predictions and forecasts from a thousand different commentators. My thoughts to follow are not so much a forecast, but an extrapolation of what we have already experienced in 2015 and forces we know will be in play until the end of 2016.
This year, 2016, is a major election year in the U.S. If you are an investor, this event should interest you. Why? In 2015 a simple speech by Hilary Clinton made the entire pharmaceutical sector go into a tail spin for a number of weeks. Mrs. Clinton noted how if she is elected she would impose certain caps on prescription drug prices. Such action would thus marginalize the profits from companies making such drugs. The market reacted with a prompt sell off across the board for pharmaceutical companies.
Fund managers and other major players in the financial markets always have their eyes set on the horizon ahead. What is to come next and how does it change the current landscape of investments? Each time a candidate that is believed to have a good chance of winning the Presidency makes a statement that could impact that bottom line of a company, sector, or industry, the market will react. The reaction could send prices up or down depending on the statement made.
If you want guidance as an investor as we travel further into the year that is now upon us, look no further than the political circus that will continue to run through November. Which candidates have the best shot at winning? What are those candidates saying about certain types of businesses, technologies, and regulations? Their words will have the power to move the market.
Note – The market has a tendency to overreact to things said by the Presidential hopefuls. Therefore, you need to be aware if the trend you see is short or long-term. If you are waiting for a buying opportunity, negative news can cause sharp declines that are often exaggerated. The severity is often over-pronounced for only a short period (a few trading days or less), then a rebound will occur when the manic mood swing is normalized. The same goes with positive news that drives up prices. Euphoria will cause spikes in prices that are often followed by sell-offs, which bring prices back down to a more rational level.