The following is our view on how to navigate this week’s heavy political slate, which is an excerpt of our Growth Equity quarterly update.
Political risks are particularly challenging for investors, especially in economic areas where cash flows can be impacted by shifting political winds. Thanks to the fungibility of capital, we see opportunities for the main cylinders of our economic engine to continue to fire. The exercise just requires increased fundamental rigor.
The Market’s Dynamic Adjustments to Probability
The only thing certain about political uncertainty: it comes in many forms and can be tough to predict. The House subcommittee’s efforts are one aspect, while November moves us closer to solidifying compositions of both executive and legislative branches. Given that this particular exercise recurs on four- (presidential) and two-year (midterm) cycles, the market is no stranger to digesting, and seeing through, this newsflow. The market’s embedded probability-weighing mechanism will not wake up on November 4th and flip from 0% to 100% should the underdog win; probabilities shift daily in one way or the other with prices adjusting in anticipation of the changing outcomes.