Archive for the ‘Market Commentary’ Category

Abandon All Assumptions, Ye Who Enter Here

November 9th, 2016

Today is a perfect example of why we don’t try to time the market. Even if you got the election outcome right, even if you know that the pundits and the pollsters and the bookmakers would be horribly wrong, even if you were sure that Donald Trump would be the President Elect, it might not have helped you financially. That’s because the conventional wisdom was that a Clinton win would be good for the market and at Trump win would be bad. And for a while last night, that appeared to be true: at one point, Dow Jones Industrial average futures were down 800 points. But right now, the Dow is up 250 points. So much for market predictions!

Non-US markets aren’t doing quite as well, with emerging markets down about -3.1% in dollar terms and developed markets up a mere +0.2%. Bonds are getting creamed: the US 30-year Treasury bond yield is up 25 basis points to 2.87%, well above its July low of 2.1%. Commodities including oil are rising, mining stocks are soaring (Freeport McMoRan is up nearly +8%), and most drug stocks are up big as well (Pfizer over +8%). The dollar, which sank almost -3% against the Yen last night is now up against most major currencies, and the Mexican Peso is down -8.3% against the US dollar.[i]

All of these short‐term moves actually make sense to us, based on what we know about Trump. He plans to lower taxes and increase government infrastructure spending, which should boost the economy overall, cause interest rates to increase and be good for the stock market. His antipathy to regulation should also be an economic boost, as we don’t expect to see many new regulations over the next 4 years and perhaps a rolling back of some existing ones. This latter policy is behind the spike in drug stocks, as price controls seem to be less of a concern than they would have been under Clinton. And the superior relative performance of the US market reflects money coming back after being drained over the past couple of weeks, likely much of it from overseas.

Longer term, we could see an acceleration of global economic growth and gradually increasing interest rates both within and outside the US. We expected this to happen anyway, but a Trump presidency might accelerate this process. Better growth overseas and a smaller interest rate differential between US and foreign bonds should put a cap on the US dollar, providing a tailwind for non‐US investments.

Economically, the biggest potential negative of a Trump presidency is where he really stands on trade. Is he the protectionist he claimed to be during his campaign? If so, that would put a damper on global trade and create some headwinds to improving economic growth. Our feeling at this point is that his actual views and actions will be far more tempered than his campaign rhetoric. Similarly, while still possible, we think there is little chance of a wall being built between the US and Mexico, making the dive in the Peso a potential buying opportunity.

In subsequent newsletters, will comment more on how the changing political landscape is affecting our portfolio positioning. But the good news is that we had already anticipated accelerating economic growth, rising interest rates and somewhat higher inflation, and have been positioning portfolios accordingly throughout the past year.

We know that at least half of the electorate is very unhappy with the outcome of this election, and there are certainly reasons for concern, many of them non‐economic. But try not to let your political or social views drive your investment strategy. There were many who stayed away from equities because they don’t like President Obama and think his economic policies are hurting the economy. But by staying on the sidelines, they missed out on a major bull market in stocks. For those on the other side of the political spectrum, don’t let your antipathy toward Donald Trump cause you to miss out on what could prove to be an excellent few years for investors.
In the words of the great Douglas Adams: Don’t panic.

Dr. Ken Waltzer, MD, MPH, AIF®, CFA, CFP®
Managing Director, KCS Wealth Advisory
Laura Gilman, CFP®, PFP, MBA
Managing Director, KCS Wealth Advisory
Adam Bragman, CFA
Director of Investment Research, KCS Wealth Advisory

November 9, 2016

November 9th, 2016

Donald Trump has completed his landmark quest and will become the nation’s 45th President after a contentious and often divisive campaign. In addition, the Republican Party has retained control of both houses of Congress. This outcome marks a significant reversal from just a few weeks ago when a Hillary Clinton presidency was highly probable and even a Democratic party sweep of Congress was possible.

While this outcome is certainly a shock to many, it is important to remember that the result isn’t a surprise to the plurality of American voters that spoke their collective will at the ballot boxes yesterday. The strength of a democracy is not in whether we like the outcome, but rather in how we accept the result as the voice and will of our republic.

While many things are promised on the campaign trail, all newly elected Presidents enter with a constrained ability to enact their agenda unilaterally. As a result, immediate and sweeping political changes are a process, which give markets and the American public time to digest and react. Although often derided by partisans, the inability of a President to swiftly change policies is a strength of our political system, not a weakness of it.

Moreover, the current market volatility is not because Trump was elected President, as markets do not have political affiliations. Rather, it reflects the market’s adjustment to a surprise presidential winner and the market’s tentativeness regarding the vast uncertainty over which of President-elect Trump’s stated policies he will be able to enact. The first major step towards clarity will come with Trump’s choices for key administration officials; his selections will give a better sense of the priorities for the Trump administration. This should provide some path to further understanding and calm markets.

For the first time in 10 years, the Republican party will have control of the Presidency and both houses of Congress. As in all things, this may solve some problems, and perhaps exacerbate others. For example, potentially divisive upcoming issues, such as the necessary expansion of the debt ceiling and reforms to the corporate tax code, could be easier to navigate. There is a common perception that the markets like divided government. While that may often be correct, it is not necessarily true at every point in time.

Most importantly, however, over time we have witnessed corporations and financial markets adapting smoothly to new political environments. The uncertainty surrounding the Trump presidency could be greater than a typical transition; therefore, the markets may take additional time to process any changes. However, the uncertainty itself is not unusual.

Separating political views and emotions from investment decisions is difficult. Whether this election result was your favored outcome or not, what we have learned over the years is that although Presidents can set an overall tone for the markets, over the long term, it is the underlying fundamentals of the economy and the strength of corporate profits that matter more. Overall, we continue to be encouraged by the underlying fundamentals in the economy and the related resilience of the stock market. Recently, encouraging economic data, including a record 73 consecutive months of private sector jobs growth, high consumer confidence, and an increase in manufacturing activity, all suggest a recession in the next year is unlikely.[1] And, although the stock market has been essentially flat over the past three months, the S&P 500 has returned 5.2% year to date (through market close on November 8, 2016).

As this historic election cycle comes to a close, I suggest casting a “vote of confidence” for the U.S. economy and markets. While uncertainty will certainly be prevalent over the short-run, our political and economic systems are resilient and can, after a period of adjustment, adapt to new realities. As investors, we all need to try and put this election into perspective, as our investment horizons extend far beyond yesterday’s votes or any political cycle. And, the keys to your investment success of relying on independent investment advice and sticking to your long-term investment strategies should not change, regardless of who is in office.

As always, if you have questions, I encourage you to contact me.

Sincerely,
Becky Roberts

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual security. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. All performance referenced is historical and is no guarantee of future results. Indexes are unmanaged and cannot be invested into directly.
Economic forecasts set forth may not develop as predicted.
The S&P 500 Index is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.
Investing in stock includes numerous specific risks including: the fluctuation of dividend, loss of principal and potential illiquidity of the investment in a falling market.
This research material has been prepared by LPL Financial LLC.
Securities offered through LPL Financial LLC. Member FINRA/SIPC.

1 According to U.S. Bureau of Labor Statistics, ISM Manufacturing Index, and Consumer Confidence Index data as of 11/7/16