There are two events that may cause an increase in volatility in the marketplace before year end: 1) The presidential election, and more specifically a Trump victory, and 2) The Fed meeting in December, if they decide to raise interest rates.
The market’s expectation would likely be negative if Trump becomes president. For one thing, he represents change from the current political atmosphere and any change, whether bad or good, bring volatility to the market. Additionally, Trump’s positions on trade, which he voiced during the debate, would hinder commerce which is a negative to companies that buy and sell goods across borders. That would impact a wide variety of companies directly and indirectly. The general protectionist mindset Trump has shared may also cause a “risk off” action in the market meaning that individuals and institutions may pay more attention to the risks rather than the rewards in the marketplace.
Both candidates have been vocalizing support for infrastructure spending by the government. If that is the case then materials suppliers may be in line for more revenue. For different reasons both candidates have also focused on healthcare reform, whether prescription drugs or otherwise, and healthcare is likely to face more scrutiny regardless of who is elected. Certain companies in the healthcare complex will be negatively affected.
The possibility that the Federal Reserve could raise interest rates in December will likely keep the markets on edge. I expect that if interest rates rise, stock prices will do poorly since both the stock and bond markets have been advancing in-step during this recent era of low interest rates.
Neither the result of the presidency nor the Federal Reserve meeting should cause the market the correct but it is often only in hindsight that we can identify the tipping point when investors broadly decided to move toward “risk off” and start a correction. We've been seven years without an enduring market correction and there are certainly enough underlying fundamental issues to fuel a correction.
In light of this risk in the marketplace until January, it may make sense to trim positions that have appreciated in portfolios and rebalance to the baseline allocation consistent with your risk tolerance and goals. You may not want to significantly reduce equity exposure since while the risks are present, the economy still seems to be growing and the stock market is showing signs of health.