{"id":3581,"date":"2016-11-09T18:48:45","date_gmt":"2016-11-09T23:48:45","guid":{"rendered":"http:\/\/162.223.13.186\/~zacksim\/how-should-investors-react-trumps-election\/"},"modified":"2022-02-26T13:20:48","modified_gmt":"2022-02-26T13:20:48","slug":"how-should-investors-react-trumps-election","status":"publish","type":"post","link":"https:\/\/zacksim.com\/blog\/how-should-investors-react-trumps-election\/","title":{"rendered":"How Should Investors React to Trump’s Election?"},"content":{"rendered":"

No matter who you supported this election, the last year presented perhaps the most grueling and polarizing campaign season in U.S. history. The mood of the country is flummoxed\u2014are we feeling relief, anger, uncertainty, optimism, pessimism, hope, or despondency? It is an interesting time.<\/p>\n

Depending on how you felt about the outcome, you may be expecting doom or gloom for the stock market in 2017. My guess is that very few people have a \u201cbusiness as usual\u201d sentiment about the future of the economy and stocks right now. But you should! Here\u2019s why.<\/p>\n

Forget about the Election for a Moment.<\/strong><\/p>\n

Let\u2019s instead return to the real business of forecasting stock prices and the outlook for the economy, by turning our attention away from politics and towards fundamental analysis. Studying fundamentals is wonderful for many reasons, not the least of which is that it is non-partisan<\/em>, data-centric, and once you scrub the numbers, hopeful. Investors could use some of that.<\/p>\n

First and foremost, the most underappreciated metric in the U.S. economy today: GDP growth. In the 50-plus years prior to the Great Recession of 2008, the United States grew an average of +3.5% per year. Over the past six years, that figure has dropped to +2.1%, which makes this economic expansion a favorite target for bears and politicians. But the simple fact remains: growth is growth, and stocks respond to growth<\/em>. Zacks Investment Management (ZIM) expects GDP growth to rebound to above 2% in the second half of 2016 as personal income grows, households continue to spend, and firms stop reducing their inventory stocks. ZIM also anticipates that the weakness in business investment will come to an end, as the lingering effects of earlier dollar appreciation and lower energy prices dissipate \u2013 though slow foreign growth and trickle-through effects of Brexit may continue to pose a headwind. In all, ZIM expects GDP growth to be closer to trend in the 1.5% to 2% range in 2017 \u2013 modest, but still expansionary.<\/p>\n

On the employment front, job readings have been sturdy throughout 2016. November\u2019s +166K reading was right in the wheelhouse for average growth on the year \u2013 in the 9 months through September, U.S. jobs readings averaged +178K a month. That\u2019s slower than 2015\u2019s +229K, but still quite ample this late in the cycle. These employment gains durably support real U.S. GDP in the +2% range. Once you get below +150K (a level that mostly eats up the annual 2.4 million person growth in the 159 million strong U.S. civilian labor force), economists begin to worry out loud. Wage growth continues to trickle higher, so the impact to consumer spending may remain modest. Lower gas prices, persistently low interest rates, and personal wealth gains (largely from the stock and housing market) will likely do more to support spending.<\/p>\n

The real kicker in our fundamental analysis, though, is earnings growth. Consensus sees -0.2% in EPS growth for 2016, which is disappointing but reflects the nagging Energy drag. 2017 is a different story, however, as consensus points to a \u201cv-shaped\u201d recovery of +6.1% for 2017 with robust revenue growth.<\/p>\n

For many investors, these are just numbers on a page \u2013 I get that. At ZIM, our job is to pore over the data and analyze it for our clients. That\u2019s what they hire us to do. But in our recent Stock Market Outlook (which you can download for free below), we make mention of the strength in manufacturing and services surveys, both in the U.S. and abroad, particularly in Europe. The feature I find most fascinating about these reports (produced by ISM) are the industry quotes, which to me are the most telling of how things really are on the ground. I think you\u2019ll find a few of these interesting, too, and I\u2019ll leave you with these:<\/p>\n