By Linda Parenti, CFA
President & Chief Investment Strategist
Since the November 8th elections, the S&P 500 has hit four new all-time closing highs. Overall, November was a great month for stocks and a poor one for bonds, with the S&P 500 up 3.7% and the Barclays Aggregate Bond Index down 2.4% on a total return basis. That is certainly a healthy one-month return for equities, but it masks a significant post-election swing in investor sentiment towards individual sectors. For example, with the outlook for higher interest rates plus the possibility of lowered bank regulations, Financials climbed 12.2% while Utilities fell 4.7%. Energy and Industrials were up 9.5% and 8.5% respectively, while Consumer Defensive names declined 3% in November. Wall Street had priced in a different outcome to the elections and these shifts reflect a repricing of expectations for which sectors may benefit under a new administration. I would offer, however, that the current stock market rally may not solely be due to President Elect Trump’s win. It is also the implication that with Republican control of both the White House and Congress, potential fiscal policy changes combined with already accommodative monetary policy could allow for higher economic growth ahead. Equity markets may also be benefiting from stockpiles of investor cash which up to now had been sitting on the sidelines waiting until after elections to invest. As I stated in last month’s Market Insights, “Uncertainty tends to create higher market volatility, so we could be pleasantly surprised with less market volatility once the outcome is known.”
The continuation of encouraging economic data and strong third quarter earnings growth from corporate America has also contributed to a more optimistic stock market outlook. Still, it is possible that some of the recent price changes up or down in specific industries and sectors may prove overdone beyond Inauguration Day. Predicting the market’s short term moves, however, can be dangerous. The staggering afterhours equity market decline on election night and sharp reversal the following day is a good reminder of the futility of market timing. We recommend maintaining your allocations to equities, fixed income, and cash. Modifications between these major asset classes should only happen when they move out of line with your individual time horizon, goals, and risk tolerance. Rather, use market shifts such as these to take advantage of opportunities to adjust your underlying holdings by trimming profits and reinvesting proceeds in undervalued prospects. Prior to yearend is also a good time to consider balancing out your realized gains and losses in your taxable portfolios.
RISKS AND IMPORTANT CONSIDERATIONS
Views and opinions expressed here are for informational and educational purposes only and may change at any time based on market or other conditions or may not come to pass. This material is not a solicitation to buy or sell securities and should not be considered specific legal, investment, or tax advice. The information provided does not take into account the objectives, financial situation, or particular needs of any specific individual. All investments carry a degree of risk and there is no certainty that an investment will provide positive performance over any stated period of time. Equity investments are subject to company specific and market risks. Equities may decline in response to adverse company news, industry developments, or economic data. Fixed income securities are subject to market, credit, and interest rate risks. As interest rates rise, bond prices may fall. Past performance is no guarantee of future results.