For the record, we did not foresee Donald Trump winning the election. Additionally, we didn’t see the jump in stocks since the election or the flirtation with Dow 20,000.
To say the least, the entire situation has caught most off-guard. Some sold their investments fearing a complete meltdown. Others hung in there. Regardless of your support for or against Trump (or any other candidate), investments and cash flow must still be logically managed. We did not make a single investment decision for our clients based upon the election.
However, we have fielded a variety of client calls in which we have given consistent advice.
Trump is one man. I wish him well. Being the leader of the free world is far different than any role he has had prior. He will need all the support he can get—from Republicans, Democrats and independents. It is a tough job and I want him to succeed.
However, in assessing the inventory on the shelves at HEB, both before and, after the election there has been no difference. Neither the produce or meat isles are any different under a Republican administration when compared to Democratic leaders.
Without the benefit of scientific study, I am pretty sure there are no differences in operations at Academy, Buc-ee’s or any other stores most of us frequent across the Lone Star state when assessing a Republican or Democrat in the White House.
Instead, consumer demand drives product mix and consumer spending drives 70% of Gross Domestic Product. This is also what drives the economy and subsequently, profitability.
Given this, your investment mix should not change just based upon the election.
Since the election, there has been speculation about what a Trump presidency will do regarding a myriad of regulations. Much speculation has been spent assessing the reform and reduction of regulation in energy, healthcare and financial sectors. Furthermore, there is hope and anticipation that our archaic tax code can be meaningfully reformed.
In the end, I welcome a solution that will improve commerce, meaningfully employ people and generate strong profits.
Regardless of best intentions, none of this will happen overnight. Amid much optimism and consumer sentiment the stock market is behaving as if newfound profitability and efficiency is a certainty. Be careful and don’t get greedy! Even if Trump is highly successful in delivering on his goals, it will probably take two years before the associated benefits trickle down to the bottom line.
No matter who resides in the White House, the financial markets will continue to deliver a bumpy ride. It has always been that way and it always will be.
The stock market will continue to deliver volatile results. Stock market investors should always recognize that stocks can drop 10% any year. Given this, it is usually only appropriate for long-term (10+ years) investors. Time in the market is far more important than trying to time jumps in and out of the market. As such, stay focused on where you want to be over long periods of time.
The fixed income market, and other yield sensitive assets, should also be viewed with caution. Since the election, the 10-Year U.S. Treasury bond yield has increased from 1.8% to 2.6%. That doesn’t sound like much of a move—but it is a 44% increase. As such, many yield hungry investors are waking up to the reality that the pricing of fixed income assets moves opposite of interest rates. This means many people who invested heavily in income producing assets have seen their portfolios decline in value since the election.
As a general rule, if an investment is producing “income” or “yield” that is significantly higher than the 10-Year US Treasury, it contains a larger element of risk than you may be aware of. The wise investor will determine what this risk is and then determine if it matches their individual goals.
Lastly, successful investing is not predicated upon who is in the White House or a political party. Rather, wise investing focuses upon discipline, frugality, long term growth in our economy and corporate profits. In the process, the individual should be true to their short, intermediate and long term goals and build a portfolio that allows them to sleep well at night.