It has been a tumultuous time for both the nation and the markets, and rising up through the smoke, come the inevitable pundits of the financial press, crystal balls in hand. “Best Sectors under Trump!”... “Six Surefire Ways to Profit from a Trump Presidency”...”Time to Sell!”...”Time to Buy!”...
While such headlines may suck you in, they and the stories below them are meaningless.
Didn’t the “expert” soothsayers fall flat on their faces in calling the election? Didn’t they once again collectively say the market would crash on the day after the election, but it didn’t?
Jason Zweig of the Wall Street Journal, one of the good guys of the financial press, pointed out this week that “The best way to make the gods of financial history laugh is to say that anything is ‘clearly’ going to happen.” And this is especially true, he says, where presidential elections are concerned.
President Barack Obama “clearly” was going to impose health-care regulations, and so he did—but healthcare stocks ended up resoundingly outperforming the rest of the stock market while he was in office. President George W. Bush was “clearly” going to increase military spending, and so he did – but...defense stocks lost 19 percent in 2001 and nearly 7% in 2002....President Franklin D. Roosevelt was “clearly” going to be bad for Wall Street. The day after the 1932 election, the Dow Jones Industrial Average sank 6.7 percent during trading hours and closed down 4.5 percent. But then, between February and August 1933, the average stock rose 186 percent.
What’s this all mean for a Trump presidency?
It means that nothing is certain. Why are stocks up in the short time since the election? Princeton professor Alan Blinder, former vice chairman of the Federal Reserve, explains in a Wall Street Journal editorial that the current stock market cheer is likely due to Trump’s promises to increase government spending on infrastructure. “[This would] put the economy on a sugar high,” Blinder writes. But there is, he says, enormous uncertainty as to whether this spending will happen. After all, the President-Elect has run only the vaguest of campaigns, has no track record in government, and has yet to build his circle of economic advisors. He faces not only hostile Democrats, but many hostile Republicans, as well. In fact, many of the new and re-elected Republican members of Congress came into office on platforms promising to reduce the federal debt. Trump’s plan to increase spending on infrastructure (while lowering taxes) would result in a deepening of U.S. debt.
Bottom line for we investors: We really don’t know what will happen to interest rates, the value of the dollar, the cost of oil, and least of all, the stock markets. The only thing that is “certain” is that the markets, always a crap-shoot in the short run, will continue to be a crap-shoot in the short-run. In the long-run, however, the stock markets, despite their sometimes violent surges and cascades, should continue to provide nice rewards, as they have done through the many, many challenges of the past century. (Think Russian Revolution, Flu pandemic, WWI, the Great Depression, Hitler and Mussolini, the Cold War, Vietnam, Race Riots, September 11, 2001, the Financial Crisis of 2007 - 2008, and Brexit.)
The best you can do: Make sure that you have found your “Risk-Return Sweetspot,” and have invested accordingly. Keep your costs low. Stay well diversified. Rebalance regularly. And pay no attention to any “expert” who says that he can view the future.