January 31, 2017
This week’s market movement strikes me as one that needs particular comment. It’s the first full week of President Trump actually running things in DC. Over the 70 days since his election, the S&P 500 has risen 6.3%. This week the Dow Jones Industrial Average traded comfortably through 20,000 for the first time. The WSJ even published an article about the possibility of the DJIA trading at 30,000. What does all this mean to investors who are looking to put money to work?
The post election period for the markets can be compared to the way a car shifts gears. Prior to November 8th the 2016 market seemed like a car that was stuck in second gear. The outcome of the election appears to shift the market up into a solid third gear, but many market pundits were skeptical of this acceleration. How could a market, and an economy, already close to 9 years in a recovery continue to move forward? A new storyline began to develop – once Trump took office the market car would sputter and slow back down. But since last Tuesday, the market has continued to stay strong. New policy announcements from the White House appear to have helped push the market higher. Why? I think there is one major factor: US investors and consumers are optimistic, and if anything this optimism continues to grow. People are feeling good about where they stand, and how they view their future.
This is a very busy time for me as the start of the year is full of planning discussions with clients. My observation is that the mood among investors is positive and strong. Even with markets at all-time highs, investors are looking for opportunities to invest. There is also a much greater desire and willingness to spend.
A key tension in the market today is the discussion between traditional valuation metrics and the actual sentiment and momentum. The fundamentals suggest caution; the sentiment suggests optimism. There is much debate about the likely length of the current market and economic upswing. Most recoveries typically last 5-7 years, but this one is entering its 9th. The monetary measures taken globally by central bankers this time around have caused the playbook to be thrown out the window. Massive amounts of quantitative easing, which resulted in negative yields, should in itself cause traditionalists to rethink how this market can trade. Is the market high? Yes. Can it go higher? Yes. What should investors do? As always keep to the core of blocking and tackling by staying diversified across as many investments as you can, review your portfolio, and make adjustments. Not all markets are at all-time highs and opportunities still exist to take advantage of underperforming areas and to de-risk over performing areas. Most of all, remember to remain a long term strategic investor and not a trader.