Trump Trade

It's been an interesting ride since the election but it hasn't been so bad.  The market has rallied and the media has coined it the "Trump Trade."  In Q1 we've seen good results in the following indices:

  • 6.1% S&P 500
  • 7.4% MSCI EAFE
  • 11.5% MSCI Emerging Markets

A few things to consider:

The Good:

  • Corporate Tax Reform could be good for the economy and the market.
  • Infrastructure Spending, which is long needed, would provide an economic stimulus to the economy.
  • Trump inherited a very good economy with many economic indicators being the best they've been since 2008. -Earnings are expected to be much higher than the last 4 rolling quarters by JP Morgan. 
  • Rising interest rates is a good sign our economy is doing well.

The Bad:

  • Healthcare reform took a political blow by not getting a GOP heavy congress to agree which means that if political gridlock is likely the market won't like it.  The market did seem to lose steam when healthcare reform began to stall out.
  • Fundamentally the P/E of the S&P 500 is historically high.  While this is one indicator of valuation it does show that the market has run up pretty quickly which means we could be in for a cool down.
  • Rising interest rates tend to spoke investors sometimes too as it can be a double-edged sword.es has investors worried.


While there is always good and bad scenarios of every market environment I want to take a moment to resell you on the stock and bond markets, especially the stock market.  

Below is a table that shows how the S&P 500 performed during rising interest rate cycles.  You will notice it's an attractive time to be exposed to the market!


Above chart is taken from Windsor Capital Management Newsletter March 11th, 2017. https://www.windsoradvisor.com/single-post/2017/03/11/Fed-Goes-Hiking*
Below the chart shows how bonds performed in two different rising interest rate environments.  While bonds produced less than 50 year average return of 5% they still provided a competitive investment return compared to inflation.  

Above chart is taken from Windsor Capital Management Newsletter Dec 6th, 2016. https://www.windsoradvisor.com/single-post/2016/12/06/Higher-Doesnt-Have-To-Be-Scarier** While investors can get worried about political, economic and market environments I like to refer to some statistics on the stock market (S&P 500) and the bond market (Barclays Bond Aggregate Index). 
For bonds here are some statistics:

  • The average of the Barclays Bond Aggregate Index from 1928-2013 was 5.21% per year!
  • In the last 33 years the bond market has been negative only 3 times!
    • 1994  -2.82%
    • 1999  -0.82%
    • 2013  -2.02%

And during that 33 year period the average annual gain (1980-2013) was 8.42%!  While the 1980's had high interest rates it's a good reminder of the bond's index low volatility. 


For stocks the numbers get even better:

  • The average of S&P 500 from 1928-2013 was 11.50% per year!
  • In the last 33 years (1980-2013) the S&P 500  has been positive 82% of the time!
  • And during that 33 year period the average annual gain (1980-2013) was 13.92%!

Above statistics are from The Balance article "Stocks and Bonds, Calendar Year Performance" by Thomas Kenny 2016***

The reason I'm promoting the positives of the stock market is sometimes I have to remind myself not to worry so much.  It's easy to worry about the stock market, but looking at the long term statistics the market does perform! 
As always, there will be political and market events that will cause volatility.  The market will most likely go down again and most likely there will be another recession at some point.  However, there is a lot to be excited about and I wanted to remind investors that their long term goals can be accomplished with appropriate planning!

So on that note I'll leave you with one of my favorite topics: taxes.  Here is my new and updated Tax Guide for 2017.  This guide is to help you understand taxation and help you plan accordingly.  If you have tax questions please consult your tax advisor or CPA.
 D
DISCLAIMERS:
1. Past performance is not indicative of future results.
2. Historical performance is no guarantee of future performance.
3. Diversification does not guarantee profit nor is it guaranteed to protect assets.

Source:
*https://www.windsoradvisor.com/single-post/2017/03/11/Fed-Goes-Hiking
**https://www.windsoradvisor.com/single-post/2016/12/06/Higher-Doesnt-Have-To-Be-Scarier
***https://www.thebalance.com/stocks-and-bonds-calendar-year-performance-1980-2013-417028

http://www.cnbc.com/2017/03/27/goldman-expect-a-delay-in-tax-reform-and-watch-the-market-fall.html

http://www.cnbc.com/2016/12/01/standard-and-poors-trump-tax-cut-could-produce-eye-popping-stock-gain.html
 

Remember financial markets go up and down, stay the course and you'll do fine! 




Ty Peterson         |  O: 720-466-3515   | D: 720-722-3505  |  F:  720-398-3504  
Financial Advisor  |  KINDRED FINANCIAL 44 Cook St Suite 100, Denver, Co 80206

     
Registered Representative offering securities and advisory services through Independent Financial Group, LLC (IFG), a registered broker-dealer and investment advisor. Member FINRA/SIPC. Kindred Financial and IFG are unaffiliated entities. OSJ Branch: 12671 High Bluff Dr. Suite 200 San Diego, CA 92130

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Market Performance 2016*:
 6.10%  S&P 500
 8.50% Russell 2000
 7.40%  MSCI EAFE
11.50%  MSCI Emerging Markets
 0.80%  Barclay Bond Aggregate Index

Data from CNN Money (http://money.cnn.com/quote)
*Year to date as of 03/31/2017

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