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Why Safe Haven ETFs Can Stay Strong Even if Clinton Wins

Sanghamitra Saha

It’s all rosy in the market just before the presidential election, with everyone shrugging off all uncertainty. The FBI made this possible by stating that the democratic candidate Hillary Clinton’s usage of private e-mail servers was no misconduct. The issue hit the risk-on Clinton’s popularity lately and pushed risk-off republican candidate Trump a step forward, tightening the race to the White House.

But the game changed at the last moment with almost all the global bourses logging gains on November 7. Safe haven investments took a downturn with gold futures recording their biggest “one-day percentage loss in about five weeks.” iPath S&P 500 VIX ST Futures ETN VXX measuring volatility in the market shed over 12.5% on November 7.

But have you ever given it a thought that things might not as hale and hearty as they appear now. We’ll tell you why.

Let’s not forget a host of uncertainties are lined up post-election with the first being the upcoming OPEC deal. At November end, the OPEC is expected to cut an output curb deal to shore up long-ailing oil prices. If it fails to sign any such agreement, especially amid slight opposition from countries like Iran and Iraq, oil prices may once again see a downtrend and global equities may go berserk (read: Inverse Oil ETFs in Focus as Iraq Threatens OPEC Deal).

As per an article published on barrons.com, the market basically cheered the likely Clinton victory going by poll results. But polls are not reality. In recent times, polls failed to measure true sentiments when the Brexit referendum took place, as per the article. So, the present winning trend may turn the course any moment (read: UK Votes for Brexit: ETFs Winners & Losers).

The article also notified that “Italy’s constitutional referendum in early December and U.S. Federal Reserve meeting next month” may cause a substantial amount of upheaval in the market. Let’s not forget, the Fed is likely to hike rates in the December meeting, though much of the move is presently priced in.

Apart from these threats, U.S. markets are guilty of overvaluation. Several analysts have been warning about the longevity for the S&P 500’s bull run. On November 7, the S&P 500 traded at just 2.84% discount to its 52-week high (read: Play These Inverse ETFs if You Hate This Bull Market).

Moreover, as per an article published on Wall Street Journal, this year Q4 GDP and all other U.S. economic data will reflect election-induced jitters and will not speak of the true health of the economy. So, to understand where we stand now economically, it will take some more time as the investing world takes pretty long to get over the election phobia.

In early November, Atlanta Federal Reserve's GDP Now forecast model revealed that “the U.S. economy is on track to grow at a 2.3 percent annualized pace in the fourth quarter.” Though on a nominal basis, the figure looks decent, election-related unsteadiness could lower it further.

The Wall Street Journal article also indicated that the P/E ratio of the S&P 500 or other data indicating economic or corporate wellbeing normally take some time to take off even after the election as the investing world takes pretty long to get over the election phobia.

Keeping these issues in mind, one should not just rule out safe haven assets and the related ETFs. Rather investors have a close eye on the movement and fundamentals of gold bullion ETFs like SPDR Gold Shares GLD or long-term U.S. treasury ETFs like iShares 20+ Year Treasury Bond TLT or the Japanese currency ETF (another traditional safe asset) CurrencyShares Japanese Yen ETF FXY.

If something really goes wrong, volatility ETFs like VXX or inverse S&P 500 ETFs like ProShares Short S&P500 ETF SH should also be closely watched (read: 7 Inverse ETFs to Play Election Uncertainty).

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