Expecting the unexpected in the age of Trump

A stock market rally? Who knew?

On the evening of Tuesday, Nov. 8, I grabbed my work bag and headed home. As I drove, I remember thinking I was glad the election was going to be over. I was sick and tired of the negative campaigns and the polarizing effect it had on Americans. 

As a money manager, I did not like the uncertainty. As I sat down in front of the television and turned on cable news to watch the results, I thought it would be an early night. After all, the polls indicated a solid Hillary Clinton victory. By the time I went to bed, the “blue wall” had crumbled, and Donald Trump was declared the winner.

 I wasn’t expecting that.

The Aftermath

Financial markets do not like surprises or uncertainty. A Trump win not only was a surprise, but it brought uncertainty in the form of an undefined policy and coming change in policy. The markets were angry.

As I went to bed that night, Dow futures were down bigly – a whopping 800 points. I set my alarm for a very early wakeup expecting a long day. But something happened overnight, the Dow futures recovered much of those overnight losses – a more manageable negative 250 points. By the close of the stock market on Wednesday, Nov. 9, the Dow soared 257 points brushing up to lifetime highs.

 I wasn’t expecting that. 

One Month Later

The day after the election, it was apparent the markets liked the promise of lower taxes, less regulation and more infrastructure spending. History has shown us the markets hate uncertainty more. Most experts believed the uncertainty of policy would trump the promise of market friendly policies resulting in a short-term decline in stocks. 

Although one candidate dismissed the economy and the other called it a “disaster”, the foundation was actually in fairly good shape – low unemployment, recent wage growth and low inflation. This lays the groundwork for Janet Yellen and the Fed to raise rates on Dec. 15 — a move the markets will not like.

Surely, there is no way the stock market would rise in the face of uncertain economic policies and an interest rate hike. Since the election, U.S. stocks are up nearly 5 percent. Over this same period, the short-term safe haven of bonds crumbled as the price of bonds declined.

 I wasn’t expecting that. 

What to Expect Now?

The promise of new policies brings new speculation to the future of the stock market – both short- and long-term. The promise of new policies does not mean they will be implemented. As Antoine de Saint-Exupery said, “A goal without a plan is just a wish.” 

Donald Trump has big goals for his policies, but both Democrats and Republicans must support his policies to a certain degree. The markets are increasing based on speculation that his policies will be implemented. If we see military spending, bank deregulation and a robust energy policy, there are several stock market sectors projected to do well.

 The finance sector, specifically, bank stocks love the idea of relaxed banking regulations. Energy sectors should benefit from the new administration’s promotion of energy production. Greater military expenditures bode well for defense stocks. 

History shows a post-election market rally does not necessarily foreshadow a booming economy. A diversified portfolio is the best protection against portfolio risk. As Warren Buffett said, “Only when the tide goes out do you discover who’s been swimming naked.”

 In other words, it is easy to make money when the markets are going up, but an unprepared investor will be exposed when the markets are declining. In the current financial environment, prepare, take reasonable risk ― and expect the unexpected.


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