The Other Side of Euphoria

May 18, 2017

I can't think of any other word to describe the stock market's reaction to the election of Donald Trump than "euphoria". Despite what the so-called experts predicted, the election of Donald Trump was not met with a market crash, but rather a massive inflow of excitement (and cash) into the market environment. There have been a few bumps along the road, but each time the market has picked itself back up and surpassed the previous levels.

Yesterday we saw the biggest bump yet. The S&P 500 posted its biggest single day loss since last September. Unlike the last two bumps in the Trump rally (caused by the Freedom Caucus pulling their support for the 1st attempt to repeal and replace "Obamacare" & then the Federal Reserve announcing it was going to wind down its massive balance sheet), the latest concern is about the President himself. Now rather than  questioning IF/WHEN the President's pro-stock market ideas are implemented the question facing market participants is whether or not the President will still be in office 4 years from now.

 

I'm not one to play into the political shenanigans going on in Washington. I have better things to do. I will say the longer this goes on the more investors/speculators in the market will begin focusing on the valuations and whether they are supported by the projected economic growth. Valuations can remain high and go even higher if strong growth is expected, but without it high valuations often turn into a bear market when the expected growth rate plummets.

 

As readers of this blog, listeners to our Podcast, and attendees at our client seminars will recall, my concern for 2017 has been and remains the prospect we could be facing a mirror image of 2009. Remember when President Obama took office the fear was all of his anti-market, anti-capitalism ideas that got him elected would be implemented. The market took a big leg down following his election and again after he was inaugurated. February 2009 was filled with a confident President vowing to escalate regulations, hike taxes, and throw Wall Street executives in jail. When it became apparent he would not get anywhere with that bluster, he backed down (after receiving some key advice from former President Clinton). By the beginning of March we saw a different tone from the White House. It is no coincidence (with the benefit of hindsight) as to why that marked the bottom of the bear market.

 

Coincidentally, despite fractionally surpassing the prior high, we could say the market (so far) peaked at the beginning of March. The market was trading on the prospect of all of the "good" Trump campaign ideas being implemented and ignoring the "bad" Trump. All the bluster from November through February has been surpassed by reality. Saying you are going to slash regulations & taxes, spend over a trillion dollars on infrastructure, create millions of American jobs, and create economic growth we haven't experienced since the 1990s is one thing. Actually getting them done is another.

 

Don't get me wrong. I fully believe the IDEAS President Trump has embraced in terms of the economy and regulation are generally good things. We have major STRUCTURAL issues that can only be fixed with massive changes in the way things are done. However, the President is running against so many obstacles the likelihood of him getting any of them done decreases by the day. I've warned since the election to not let your political leanings impact your investment decisions. The only way to do that is to use DATA to make the decisions, which is what we do at SEM.

 

I hope I'm wrong and this is simply another bump along the way, but I'm reminded often -- hope is not a strategy.  This is why DATA based decisions, or in our case Scientifically Engineered Models are the only way to overcome the Behavioral Biases too many investors and their advisors exhibit -- especially when you get into volatile markets like we could be entering.

Please reload

Web and Internet news concept with rss f
Featured Posts

Investment Grade Junk

September 11, 2019

1/10
Please reload

Recent Posts

January 29, 2020

December 10, 2019

Please reload

Connect
  • LinkedIn Social Icon
  • Twitter Social Icon
  • Facebook Social Icon
  • RSS Social Icon

Related Posts

Please reload

© 2016-20 Strategic Equity Management, Inc. dba SEM Wealth Management. Site created by Courtney Hybiak.

This site is for INFORMATIONAL PURPOSES ONLY.  The comments and posts published in the SEM Trader's Blog ARE NOT investment recommendations. They can NEVER be considered as trading calls or advices. If you decide to use the information offered here for your real trading it is at your own risk.  CFA® and Chartered Financial Analyst® are registered trademarks owned by CFA Institute

Investing in the stock or bond markets involves risk and may not be suitable for all investors. Before making any investment decisions you should carefully consider your investment objectives, level of experience and risk appetite. The possibility exists you could sustain a loss of some or all of your initial investment and therefore you should not invest money you cannot afford to lose. You should be aware of all the risks associated with your investments and seek advice from an independent financial advisor if you have any doubts. All investments involve risk including those managed by SEM Wealth Management.

Opinions expressed at www.stratequity.com, www.semwealth.com and semtradersblog.com or the previous Trader's Blog site are those of the individual authors and do not necessarily represent the opinion of SEM Wealth Management or its management. Any opinions, news, research, analysis, prices or other information contained on this website, by SEM, its employees, partners or contributors, is provided as general market commentary and does not constitute investment advice. SEM will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on such information.

 

The use of this website constitutes acceptance of our user agreement. Past performance is NOT indicative of future results.

***Anywhere performance of SEM's Investment Models is used, please refer to our Performance Snapshot  which contains details of the performance calculations for each of our investment models.***

 

There is no representation made as to the future results of SEM’s programs or if they will be profitable.

For additional information on the author and SEM Wealth Management, please see our DISCLOSURE DOCUMENT (ADV Part 2).