We live in a crazy world and, as the US presidential election has just demonstrated, there is nothing to stop it from getting crazier still.
After a drawn out counting process, Joe Biden secured enough votes in the US electoral college on Saturday to become the country's 46th president. But there is still a lot to consider. Donald Trump has not yet conceded the election and is continuing to threaten legal action. We also have the Covid-19 pandemic, Brexit and longer-term challenges such as climate change. No wonder it has been a volatile year for stock markets.
This puts investors in a tough position. Should they abandon equities for the safe havens of cash and gold, or load up while share prices are cheap?
There is never a totally safe time to invest in the stock market, but this year has been riskier than most, with global share prices crashing by a third in March, and only partially recovering over the summer.
They would have fallen a lot more than that, if it wasn't for the US Federal Reserve unleashing trillions of dollars worth of fiscal and monetary stimulus to stop markets from seizing up due to lack of liquidity.
That money continues to support share prices today. The US S&P 500 actually rose by around 7 per cent last week. Investors are betting that whatever happens in the US, the Fed will support the market.
Peter Garnry, head of equity strategy at Saxo Bank, names another reason why shares held firm throughout the election turmoil. “The US election outcome is proving to be exactly what the market wanted.”
Wall Street was wary of a clean sweep victory for President-elect Joe Biden, with a blue wave taking him into the White House and giving the Democratic party control of both the House of Representatives and Senate.
Mr Biden has pledged to raise corporate taxes, regulate social media companies like Facebook and Twitter and raise the federal minimum wage, which would hit company profitability and shareholder returns.
With Republicans likely to maintain control of the Senate, Mr Garnry says Mr Biden is much less of a threat. "Corporate taxes will not be raised, tech regulation will likely grind to a standstill and there will not be any major healthcare reforms.”
This removes a lot of investment risk and US companies should now enjoy a "benign policy environment", Mr Garnry says.
US tech stocks rose as a result, as did big oil, on the assumption that Mr Biden’s clean energy revolution, or green new deal, will struggle to make it through the Senate, in a blow for the environmental sector.
Rick Lacaille, global chief investment officer at State Street Global Advisers, says investors should avoid making big bets either on fossil fuel or renewable energy producers right now. “There is a need for a lot of consensus building before more radical policies take root.”
Chris Beauchamp, chief market analyst at online trading platform IG, says Mr Biden’s planned trillion-dollar January stimulus package may also be scaled back. “The Fed will have to take up its quantitative easing role again with a weary sigh until a stimulus package is hopefully agreed.”
Investors have another concern. Despite today's worries, the US stock market isn't cheap. In fact, it's far from it.
The Shiller price/earnings ratio, which measures valuations, currently stands at a hefty 31.99, double its medium long-term average of 15.81.
Laith Khalaf, financial analyst at London wealth platform AJ Bell, says that is “pretty eye-watering by historical standards”.
"What’s particularly remarkable is that this lofty premium comes at a time of extreme stress for the global economy.”
He puts this down to ultra-low interest rates, fiscal stimulus and the rapid growth of tech titans Facebook, Apple, Amazon, Netflix, Google-owner Alphabet, and Microsoft. “These six companies now make up 25 per cent of the S&P 500, up from just 7 per cent a decade ago.”
Past performance is no guide to the future but Mr Khalaf says big tech is thriving in the pandemic. "While valuations look lofty, that’s been the case for some time and it hasn’t stopped investors turning a healthy profit.”
Vijay Valecha, chief investment officer at Century Financial, remains bullish on US tech due to a Washington gridlock. “Tech regulation might turn out to be less burdensome as a result. Investors wanting to increase their exposure could buy Invesco QQQ Trust, which tracks the Nasdaq 100 index.”
Paul Jackson, global head of asset allocation research at fund manager Invesco, says the biggest threat facing markets now is not the US, but Covid-19, as countries lock down to avert a second wave. “Recent declines may have priced in the weaker environment but I suspect things could get worse as major indices such as the S&P 500 are still close to all-time highs. This may favour cheap cyclical stocks and emerging market equities.”
There is another threat to contend with, as the UK and EU move towards delivering some kind of Brexit deal before the December 31 deadline. Mr Jackson says: “UK assets look cheap and a good deal with Europe could help release that value. Such a scenario may favour domestically orientated UK stocks and real estate.”
The UK has badly underperformed over the past 10 years, with a total return of 58.7 per cent, according to figures from Morningstar. This compares to a bumper 304 per cent from the US, 126.3 per cent in Japan and 87.5 per cent in Europe.
Mr Khalaf says the UK may tempt investors as a Brexit deal could boost both stock markets and the pound but warns: “British companies have to battle a weakening economic picture.”
Mr Valecha says investors should remain positive and keep investing in growth stocks, as monetary policy will drive share prices higher, and compensate for economic weakness. "There is a very low likelihood of Fed chair Jerome Powell raising interest rates in the near future.”
He says healthcare will be an obvious beneficiary of a Biden presidency as the Affordable Care Act is safe for now, and tips exchange-traded fund iShares US Healthcare ETF for those who want access to this sector.
“Trade tensions might abate and so that could be bullish for emerging markets. Investors could buy iShares MSCI Emerging Markets ETF,” Mr Valecha says.
Chinese, Japanese and German companies will benefit for the same reason, and he tips iShares MSCI China ETF, Franklin FTSE Japan ETF and iShares MSCI Germany ETF.
Mr Valecha is wary about the impact of Brexit. “This could be an overhang in UK and European economies like Spain, which have high exposure to the UK.”
Those who prefer safe-haven gold may be tempted to take a position today, with the price falling from August's all-time high of $2,084 an ounce to $1,951 at the time of writing.
Fawad Razaqzada, market analyst at ThinkMarkets, says the gold price now looks attractive for investors wanting diversification. “The precious metal has had lots of opportunities to go lower, yet it hasn’t, suggesting the bulls remain in control.”
If the gold price was going to drop further it should have done so by now, Mr Razaqzada says. “Its refusal to do that makes me remain bullish.”
The craziness doesn't look set to end any time soon. Investors must remember that building wealth for the future is a long-term business, and you have to stick with it through the downs, as well as the ups.