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In March, I told you that 2016 is the year of falling uncertainty — the year when fear of unknowns such as Brexit, the US election, negative rates and oil prices fade, boosting stocks. Life has gone on since then, uncertainty is gradually falling, and stocks are discounting it by recovering. Whatever you fear, now is the time to invest. If you wait for full clarity, it’s too late.
When 2016 began, America had 17 presidential candidates and several others who might run. Now we have two. The Republican field winnowed to Donald Trump, and Hillary Clinton will be the Democratic nominee. Bernie Sanders lingers, but that uncertainty will evaporate by July’s party convention.
The more uncertainty flies out the window, the more markets can focus on likely outcomes and start discounting them. Now that the race has simplified, stocks can get to know Mr Trump and Mrs Clinton, get used to the idea of either as president, and price it in. The last question mark vanishes on November 8, when the results are in — but don’t wait for the vote tally. Markets will pre-price the winner as the race hits the home stretch, probably in August and through the debates in September and October. It’s what they do.
Meanwhile, the Brexit vote is coming soon to a theatre near you. In a month the uncertainty evaporates. Will Remain win? Or Leave? How bad would Brexit be? No one can know now, but we know when we’ll know (June 24).
Here too, don’t wait. Fear of the worst is baked in, and it’s highly unlikely an actual Brexit goes even worse than that. Hence a non-disaster is likely. Whether things go a bit or a lot better than disaster, better than expected is bullish. Markets are already seeing this and discounting it. You’ve seen many articles, in this paper and elsewhere, gutting those doom-and-gloom Brexit warnings. The more credibility they lose, the more clarity stocks gain, and the further they move on.
What about negative rates? Dread spiked last quarter. Now we know eurozone GDP accelerated. Uncertainty over eurozone banks’ earnings and potential capital raises also surged then — now we know loan growth accelerated and broad money supply rose swiftly. There, too, clarity is coming.
So is summer — time for the annual euro crisis re-run. This time it’s Spanish politics and another Greek stand-off. Will Spain’s June election — the second since December — deliver a government? Maybe, maybe not, but Spain is growing fine without one. Belgium went 589 days without a government in 2010 and 2011 and it did fine, too. Will Greece finally Grexit? Another unknown. But we’ve lived that movie many times since 2009. Either they kick the can down the road and life goes on, or they Grexit and the euro carries on — both fine outcomes, and markets know it.
Brexit? In or Out
What a British divorce from the EU would look like
How any break-up is carried out will have a huge impact on Britain for generations
The economic consequences of Brexit
Three very different outcomes of a British vote to leave the EU
What would Brexit mean for the City of London?
There is a clear split over how a vote to leave would shape the capital’s future as a financial centre
What the City stands to lose and gain from Brexit
Sectors such as foreign exchange trading have boomed during EU years
What has the EU done for the UK?
The long-running debate over the economic benefits of membership remains unresolved
The Fed’s June meeting is another fount of uncertainty. As I wrote last month, the Brexit vote should preclude a move, but many seem convinced Fed will act anyway and wreak havoc. Yet markets should know another Fed rate rise, whenever it happens, won’t be disaster. Remember all the concerns before last December’s rate increase? We now know it went fine. The US grew, capital markets didn’t go haywire, the dollar drifted and long rates sighed. The yield curve spread remains relatively wide. All fine.
Don’t underestimate how much markets can move in advance of full clarity. Brazil has stewed over its political future for months. Congress has been trying to impeach Dilma Rousseff, the president, since December, and proceedings are now under way. It could be half a year before her future is sealed, but Brazilian stocks are rocking. Up about 60 per cent from January 21 through May 4, Brazilian markets thrived as impeachment’s likelihood increased. Now, the rally is likely in part due to oil and commodities’ rebound, which I don’t expect to last, but consider it this way: stocks haven’t waited for clarity on Ms Rousseff. Maybe the rally runs on, maybe it doesn’t, but the last four months prove waiting for resolution is costly.
Waiting for an all-clear signal is a great temptation for investors, but wrong-headed. Full clarity isn’t a buy signal. It’s a “you’re-too-late” signal. Fear itself is your buy signal, and fears are everywhere now. This is your buying opportunity. You want to be invested before all these things are priced into a clearer future. Brexit opportunity expires soon. The rest fade soon after and by November, you’ve missed it. The time to buy is when uncertainty is high.
Ken Fisher is the founder and chief executive of Fisher Investments