As this week comes to a close, one topic seems to be on all investor’s minds – how will Trump’s presidency affect the market? Read more in this edition of Steady Investor’s Week…
Is the “Trump Rally” a Sign of a More Bull Market Ahead? – There has been plenty of “green” in the U.S. equities markets since the election of Donald Trump as the 45th president. We’ve observed a great deal of rotation: value stocks are outperforming growth stocks, small and mid-cap stocks are outperforming large caps, and some of the laggard sectors of previous years – like financials and industrials – have posted solid weeks. In fact, stocks of financial companies in the S&P 500 jumped about 11% in the week after the election, perhaps in anticipation of rising interest rates (which could lead to higher net interest margins) and the possibility that Trump would unwind or at least loosen some of the regulations set forth by Dodd-Frank. Trump’s talk on big infrastructure projects has also led to a rally in the Industrials sector, which rose nearly 6% over the same time frame. As we have said in previous notes, however, investors should not get too wound up in the short-term action we’ve been observing – it’s not the candidate that matters most to the stock market’s performance, it is policy. And where we sit today, there is no policy – only proposals. The market may be trying to anticipate some of the big changes due under the Trump administration, but the smart money in our view is hanging tight until we have more concrete information.
Central Bank Governors Offer Their Two Cents – Central bank governors across the U.S. made statements offering a very high-level view of the potential effects of Trump’s policy initiatives. The Richmond Fed President, Jeffrey Lacker, said that Trump’s plans to ramp up infrastructure spending could boost fiscal stimulus, which could, in turn, prompt the Federal Reserve to raise rates. At Zacks Investment Management we have long called for additional fiscal spending to offset the need for near-zero interest rates, and we could see this come to fruition as early as the second half of 2017. Dallas Fed President, Robert Kaplan, erred on the side of caution, saying that Trump should enact ‘intelligent’ fiscal policy to increase growth. And finally, the Fed President we frequently cite in our Stock Market Outlooks, San Francisco’s John Williams, warned that the U.S. should maintain its commitment to free trade and open policies.
SEC Chairman Mary Jo White Plans to Resign – though this feels like big news, in reality, it is not that earth shattering. The SEC chairman merely enforces the rules; they do not make them. So Mary Jo White’s plans to step down around the same time President Obama exits the Oval Office is probably an indication of two things: her desire not to be fired, and, a subtle declaration that she is opposed to the ‘loosening’ of rules likely under President-elect Trump. On the table for the rule shake-up are yet-to-be implemented Dodd-Frank provisions, as well as relaxing mutual funds’ use of derivatives, and limiting controls on algorithmic traders and dark pools.
0.3% GDP Growth in eurozone – in a story buried in a Trump-dominated news week, the eurozone posted meager +0.3% GDP growth in Q3, or 1.6% on an annual basis. Fears abound over the legs of the weak economic recovery given Trump’s tough stance on trade and the eurozone’s reliance on the U.S. to give growth a boost. Last week, the European Commission cut its GDP forecasts for the bloc, with the expectation now for the euro area to grow 1.7% this year and 1.5% in 2017, after growing 2% in 2015.
President-elect Donald Trump dominated the headlines this week. But when it comes to making investment decisions, investors should not get caught up in the headlines. While the election outcome makes news, it is policy changes that investors should pay attention to when making investment decisions. As policy changes are currently only proposed, it only makes sense to hold tight and remain vigilant as they take shape. To help you keep an eye on the changing landscape of the market, check out our newly released Stock Market Outlook report. This 22-page briefing gives you an edge over other investors, disclosing facts and predictions to help guide your investing strategy:
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