With the US presidential election now less than seven weeks away, many clients have been asking us how to forecast market returns ahead of this pivotal event.

If one of our investment goals is to prevent a lot of money from becoming a little, then the basis for our investment must be a well-researched forecast of return.

We see sentiment as a mean-reverting systematic factor that should be rewarded when timed right, much like Size, Liquidity, or the Leverage factors in our fundamental factor risk models.

The Covid-19 pandemic has affected some sectors more than others. This impact was immediately reflected in changing exposures to three of the style factors in our fundamental multi-factor risk models.

The notion that markets “climb a wall of worry” is a commonly held view in the investment world. Eventually, the concerns of those investors fade and they become risk-tolerant themselves.