Play Video Where the ultra-rich invest during a volatile market
The markets suffered another bumpy week in the post-midterm election period, with steep losses suffered by stocks. But if political headlines weighed on investors, it was more likely that the unresolved trade war with China was the reason rather than the reshuffling of House seats in favor of the Democrats.
Several headlines from the past week featured White House officials contradicting each other over trade negotiations with China and the potential implementation of additional tariffs in January. That back-and-forth may have contributed to losses of more than two percent for the Dow Jones Industrial Average and Nasdaq. But still, a recent survey suggests that many wealthy investors are not focused on short-term politicals risks and are not making major changes to their portfolios in the post midterm election period, even if they expect volatility to remain elevated.
Only 9 percent of investors with at least $1 million in a self-directed brokerage account expect stock market volatility to decrease as a result of midterm election results that turned out as they expected. More millionaires expect volatility to remain the same (47 percent) or increase (44 percent), according to a survey conducted by E-Trade Financial between Nov. 7 and Nov. 12 among 900 investors who trade their own accounts (the results for the more than 100 millionaires included in this survey are provided exclusively to CNBC). Sixty-seven percent plan to make no changes to their portfolios as a result of the elections, the E-Trade survey found.
Traders and financial professionals work on the floor of the New York Stock Exchange (NYSE) at the opening bell, October 25, 2018 in New York City.
"These are more experienced investors, sitting tight and staying the course," said Mike Loewengart, chief investment officer at E-Trade Capital Management. "Any near-term noise is never a good idea to make wholesale changes. Over longer periods of times these events are less meaningful."
Loewengart said one mindset that has always distinguished wealthy investors is recognizing that good times can't last forever. "There will be a pullback, there will be another recession, they are certain of it happening, but don't know when."
But the wealthy do believe there are headwinds for the economy that will hurt their personal financial situation and that are bringing stocks closer to the end of their decade-long run. The largest group of millionaires believe stocks have one to two years at most remaining before the end of this bull market. "That is considerably higher than what we saw in the overall survey or when we break down the results by Democrats or Republicans," he said.
Another 25 percent of these wealthy investors said "the end is near."
How many years are left in the bull market? Time period Democrat Republican $1MM+ 5+ years 8% 11% 7% 3-4 years 26% 25% 8% 1-2 years 28% 36% 45% The end is near 25% 17% 25% I don't know 13% 11% 15% E-Trade Financial
The one market bet more millionaires are making as a result of the midterm elections is on health care stocks, with 58 percent believing they offer the most potential now. Some other sectors that have received interest as a result of belief the new Congress could enact infrastructure legislation, industrials and materials, are not popular. That may be due to the fact that falling energy prices and concerns about a global economic slowdown are stronger headwinds than any potential for a divided Congress dealing with a large federal deficit to pass a major piece of infrastructure legislation, Loewengart said.
Sector with most potential after midterm elections Sector $1MM+ Health care 58% Financials 44% Energy 30% Information technology 37% Consumer staples 29% Industrials 26% Consumer discretionary 18% Utilities 22% Materials 21% Communications services 15% E-Trade Financial
Where these millionaire investors are most concerned is with the impact of the new Congress on personal financial power. Only 22 percent think the new Congress will be good for consumers in terms of inflation control; only 16 percent think the new Congress will be a positive in terms of the taxes they pay on investments; only 13 percent think the new Congress will be a positive in terms of the interest they pay on debt, such as mortgages; another 18 percent expect the new Congress to be positive in terms of the prices they pay for goods.
In the end, that may have less to do with the precise makeup of Congress and more to do with the simple fact recognized by these investors that rates are going up. "If rates are going up and if economic growth is still modest, that has potential to create inflationary pressure, it has potential to cause prices of goods to go up, as those additional costs are passed onto consumers," Loewengart said.
Why Howard Schultz may want to think twice about running for president
E-Trade also asked these investors about the long list of celebrities rumored to be considering a presidential run in 2020 and how they stack up in terms of potential positive impact on the financial markets. The results were not surprising: a group of Americans with large market portfolios put the two best-known market figures at the top of their ballot: Michael Bloomberg and JP Morgan CEO Jamie Dimon. But a market figure whom many people believe is among the most serious about a run, Starbucks founder Howard Schultz, fared even worse than The Rock and Oprah.
Which celebrity candidate would be best for the financial markets Candidate Total Democrat Republican $1 million-plus accounts Michael Bloomberg 26% 36% 15% 34% Oprah 15% 21% 9% 6% Mark Cuban 13% 15% 12% 12% Mark Zuckerberg 13% 15% 11% 5% Jamie Dimon 12% 10% 14% 19% The Rock 9% 9% 9% 3% Howard Schultz 6% 7% 4% 2% Other 3% 3% 3% 4% None 27% 16% 38% 32% I don’t know 12% 13% 12% 13% E-Trade Financial
This E-Trade survey was conducted from November 7 to November 12 of 2018 among an online US sample of 900 self-directed active voting investors who manage at least $10,000 in an online brokerage account. The panel is 47% Republican and 43% Democrat, as well as 40% female and 60% male, with an even distribution across online brokerages, geographic regions, and age bands. The millionaire set includes 107 respondents.
