November 14, 2016
Markets were remarkably sanguine following the election of Donald Trump to the presidency of the United States.
There was a moment of panic. As election results rolled in on Tuesday, Gold prices rose and Treasury yields fell, as investors sought safe havens. Dow Futures, a measure of overnight sentiment, fell by 4 percent, and Standard & Poor’s 500 futures dropped 5 percent. (When index futures trade lower before the market opens, it is an indication investors expect the actual index to trade lower when the market opens.)
The losses triggered market circuit breakers, forcing investors to take a moment. They listened to President-elect Trump’s conciliatory acceptance speech, reassessed the political and economic landscape, and liked what they saw, according to Barron’s. Financial Times offered this assessment:
“Fear and loathing was the overriding sentiment of fund managers and analysts contemplating the market implications of an unlikely Donald Trump presidency…But when confronted by the reality of his election win, stock investors swiftly switched back to their more natural state of optimism, focusing on the prospect of growth-boosting stimulus, tax cuts and tax reform, and the rollback of industry-inhibiting regulation. Simultaneously, bad policies were dismissed as campaign rhetoric.”
Bond markets weren’t enthusiastic about the President-elect’s fiscal stimulus plans. Barron’s reported:
“The 30-year bond climbed 0.3 percentage point to 2.94 percent, resulting in a 6.3 percent decline in price. (Bond prices move inversely to yields.)…It wasn’t just Treasuries. Municipal bonds, corporate bonds, and preferred securities all fell. Bloomberg estimates $1 trillion in the value of bonds evaporated last week after the election.”
There was speculation Mr. Trump’s win would cause the Federal Reserve to delay the next rate hike. However, in a speech on Friday, Federal Reserve Vice Chairman Stanley Fisher said the Fed seems reasonably close to achieving its inflation and employment targets. “Accordingly, the case for removing accommodation gradually is quite strong, keeping in mind that the future is uncertain and that monetary policy is not on a preset course.” It appears rates may move higher in December.
IT’S JUST NOT EASY TO DO. Brexit came as a shock to many. So did the outcome of the U.S. election, but let’s face it – whether you’re trying to evaluate the potential of a company or the future of a country – predicting what may be ahead is never easy.
For instance, back in 1901, John Elfreth Watkins conferred with the “the wisest and most careful men in our greatest institutions of science and learning” to determine what might happen during the next 100 years. His predictions weren’t all accurate, but some were quite insightful:
“There will probably be from 350,000,000 to 500,000,000 people in America and its possessions…Nicaragua will ask for admission to our Union after the completion of the great canal. Mexico will be next. Europe, seeking more territory to the south of us, will cause many of the South and Central American republics to be voted into the Union by their own people.”
“The American will be taller by one to two inches. His increase in stature will result from better health, due to vast reforms in medicine sanitation, food, and athletics. He will live fifty years instead of thirty-five as at present – for he will reside in the suburbs.”
“Hot or cold air will be turned on from spigots to regulate the temperature of a house as we now turn on hot or cold water from spigots to regulate the temperature of the bath…”
“There will be no street cars in our large cities. All hurry traffic will be below or high above ground when brought within city limits…These underground or overhead streets will teem with capacious automobile passenger coaches and freight wagons, with cushioned wheels…Cities, therefore, will be free from all noises.”
“Wireless telephone and telegraph circuits will span the world. A husband in the middle of the Atlantic will be able to converse with his wife sitting in her boudoir in Chicago. We will be able to telephone to China quite as readily as we now talk from New York to Brooklyn.”
The future is always ripe with possibility.
Weekly Focus – Think About It
“Yesterday is not ours to recover, but tomorrow is ours to win or lose.”
–Lyndon B. Johnson, 36th President of the United States
* These views are those of Peak Advisor Alliance, and not the presenting Representative or the Representative’s Broker/Dealer, and should not be construed as investment advice.
* This newsletter was prepared by Peak Advisor Alliance. Peak Advisor Alliance is not affiliated with the named broker/dealer.
* Government bonds and Treasury Bills are guaranteed by the U.S. government as to the timely payment of principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value. However, the value of fund shares is not guaranteed and will fluctuate.
* Corporate bonds are considered higher risk than government bonds but normally offer a higher yield and are subject to market, interest rate and credit risk as well as additional risks based on the quality of issuer coupon rate, price, yield, maturity, and redemption features.
* The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. You cannot invest directly in this index.
* All indices referenced are unmanaged. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment.
* The Dow Jones Global ex-U.S. Index covers approximately 95% of the market capitalization of the 45 developed and emerging countries included in the Index.
* The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market.
* Gold represents the afternoon gold price as reported by the London Bullion Market Association. The gold price is set twice daily by the London Gold Fixing Company at 10:30 and 15:00 and is expressed in U.S. dollars per fine troy ounce.
* The Bloomberg Commodity Index is designed to be a highly liquid and diversified benchmark for the commodity futures market. The Index is composed of futures contracts on 19 physical commodities and was launched on July 14, 1998.
* The DJ Equity All REIT Total Return Index measures the total return performance of the equity subcategory of the Real Estate Investment Trust (REIT) industry as calculated by Dow Jones.
* Yahoo! Finance is the source for any reference to the performance of an index between two specific periods.
* Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.
* Economic forecasts set forth may not develop as predicted and there can be no guarantee that strategies promoted will be successful.
* Past performance does not guarantee future results. Investing involves risk, including loss of principal.
* You cannot invest directly in an index.
* Consult your financial professional before making any investment decision.
* Stock investing involves risk including loss of principal.
2 http://www.barrons.com/articles/trump-agenda-could-promote-economic-growth-1478931198?mod=BOL_hp_highlight_1 (or go to https://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/11-14-16_Barrons-Trump_Agenda_Could_Promote_Economic_Growth-Footnote_2.pdf)
5 https://www.ft.com/content/a606181e-a7fb-11e6-8b69-02899e8bd9d1 (or go to https://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/11-14-16_FinancialTimes-Markets_Indulge_in_Make-Believe_Over_a_Trump_Presidency-Footnote_5.pdf)
6 http://www.barrons.com/articles/moves-to-make-as-the-bond-market-sinks-1478931249 (or go to https://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/11-14-16_Barrons-Moves_to_Make_as_the_Bond_Market_Sinks-Footnote_6.pdf)