Several of you have asked me to share my thoughts about how the market is and will, react to Mr. Trumps Presidency. I had intended to wait to include those thoughts in my year end comments in January, but I guess you are going to get a preview now!
The Stock Market is one of the leading indicators of future economic performance, and is considered to be one of the most reliable. It is generally considered that the market has the ability to look about six months out. So based on what the market has done since election day, I would say that the market is expecting a pretty good economy through at least the first half of 2017.
Let’s back up and review 2016 a bit.
It started out rather scary. As the year began, the market continued the correction that started in November of 2015, to the point that I was quite frankly very concerned about another 2008. The technical indicators were deteriorating, and defensive assets were gaining strength. By the end of the first quarter, my growth accounts were about half in cash.
By the end of summer, because of some market recovery and gains in commodities, we were basically breakeven. The market rallied, and actually hit new highs by September. It then languished as we all sat back and watched the daily drama of the elections.
We all woke up on November 9, the country in shock, the media in denial, and the market takes off. Why?
To begin with, interest rates had been edging up, and this is good for banks, they make more money. Rising interest rates also cause bond prices to drop. Some will sell their bonds and undoubtedly some of that money will flow into stocks.
But more importantly, if Mr. Trump is successful in getting Congress to agree on infrastructure spending, and so far they seem to all be lining up in support of it, then the banks will earn more than their share with new lending. Plus, infrastructure spending is all right here in the US. You don’t have your bridge built in China and ship it over. You hire local labor and build it here. Sure, some materials will come from overseas, but we are talking about well-paid skilled labor jobs. Not to mention all the businesses that supports the work. This is money for everyone. What Congressman is going to vote against new roads and bridges and airports and hospitals and all this new stuff in their very own District?
This is simply a win win.
Same with a buildup of our Military. The markets love war because all those weapons and “things that get blown up” have to be replaced. So military spending will also line the coffers of a lot of Districts. And again, most of this money will be spent right here at home.
Now let’s take a little history lesson.
In the 30’s, we were in a depression. This guy named Roosevelt (I think he was a Democrat) takes the White House, and decides to spend money building stuff all around the country. Remember the Public Works projects (WPA)? President Roosevelt simply put America back to work. Of course, entering a war didn’t hurt either. The WPA put people to work and after the war we enjoyed a booming economy that took us into the early 60’s.
50 years later, this actor from California (a Republican) moves to Washington and decides to outspend the Soviet Union. The Cold War ends with the wall coming down, but all that spending kicked off a market rally in 1982 that did not end for 17 years! (or 27 years if you include the Tech rally of the late 90’s)
So what do I think will happen?
For Christmas I have ordered a brand new crystal ball from the lobby store in the Trump Tower and I will let you know in my January newsletter.
But for now I am subscribing to an old stockbroker adage, “Don’t fight the Tape!”.
Thank you for your continued Trust and Confidence.
Gregory G. Riggs, CFP
Accredited Investment Fiduciary
Phone: 425-485- 1248
Securities and Advisory Services offered through KMS Financial Services, Inc. Member
This material represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. This information should not be relied upon by the reader as research or investment advice. This information is for educational purposes only.