Preparing for a Changing Market
Market Overview
Global markets remained volatile in October as investors weighed interest rates, inflation, corporate earnings, geopolitical uncertainty and the approaching U.S. midterm elections.
With the election now behind us, the initial market reaction has been positive. U.S. and Canadian stock-market futures moved higher as investors welcomed the prospect of divided government and potentially fewer sweeping policy changes.
Although the election offers greater clarity, uncertainty remains. We continue to focus on managing risk, maintaining diversification and positioning portfolios for both protection and opportunity.
U.S. Midterm Elections and Markets
Historical Perspective and Initial Reaction
History offers perspective on how markets have performed following U.S. midterm elections.
Since 1938, the S&P 500 has delivered a positive price return in the 12 months following a midterm election approximately 95% of the time. History does not guarantee future results, but it reminds us that periods of political uncertainty have often been followed by stronger markets.
Elections alone, however, do not determine long-term market outcomes. Corporate earnings, economic growth, inflation, interest rates and valuations ultimately play a much greater role.
The initial reaction to this week's election has been encouraging: Dow Jones futures rose approximately 1.4%, S&P 500 futures gained 1%, and TSX futures pointed to an increase of approximately 1%.
SilverBirch's Portfolio Positioning
September Preparation, October Patience
In September, we adjusted our portfolios to prepare for uncertainty surrounding the U.S. midterm elections. We increased our cash position to provide flexibility in the event of heightened risk or attractive buying opportunities.
Throughout October, we remained patient and made no further significant changes.
Our diversified strategy served us well as global markets remained volatile. Our portfolios experienced considerably less volatility, helping protect capital while maintaining exposure to longer-term opportunities.
This reflects a long-standing SilverBirch principle: diversification should be purposeful. Each investment has a role, whether generating income, preserving capital, providing liquidity, reducing volatility or supporting long-term growth.
Why We Remain Patient
With the election behind us, we remain comfortable with the positioning established beforehand.
We increased cash not to predict the election result, but to preserve flexibility regardless of the outcome.
If volatility creates attractive valuations, we have liquidity to selectively purchase quality investments. If markets continue to rise, our existing investments allow portfolios to participate in that growth.
For now, we believe patience remains appropriate.
Supporting Retirement Income
Many of our client portfolios support retirement income. Our priority is therefore to generate dependable income while managing risk, rather than simply chasing returns.
With bond yields at more historically normal levels, fixed income can once again make an important contribution to portfolio income and diversification.
Our goal is to help clients preserve capital, generate sustainable income, maintain liquidity and participate in long-term growth opportunities.
Looking Ahead
As we move through November and toward year-end, we are watching:
The longer-term market and economic implications of the U.S. election.
Inflation and the direction of interest rates in Canada and the United States.
Corporate earnings and market valuations.
Canada-U.S. trade developments and tariffs.
Bond yields and income opportunities.
Energy prices and geopolitical developments.
Opportunities to put additional cash to work if attractive valuations emerge.
Markets will continue to respond to changing economic and political conditions. Volatility is inevitable, but our approach remains consistent.
Our September adjustments prepared portfolios for uncertainty rather than leaving us to react to it. October reinforced the value of this approach: diversified positioning helped limit volatility while we remained patient.
We will continue to assess opportunities carefully following the election. Our cash position provides flexibility, while our diversified investments allow portfolios to participate if markets continue to strengthen.
As always, we remain focused on risk management, sustainable income and long-term opportunities aligned with our clients' financial goals.
Thank you for your continued trust and confidence. Please contact our team if you have questions about your portfolio or financial plan.
With Kind regards,
Your SilverBirch Wealth Management Team
