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Market Update Following Election Results

Market Update Following Election Results

Last week stocks surged as the impact of the election results dominated market activity and investor sentiment. Trump’s unexpected victory came as a surprise to many investors as the Dow Jones Industry Average (DOW) gained over 5%, its biggest weekly jump since December 2011.  While the averages generally increased, those gains were isolated to specific sectors.  As the graph illustrates, many sectors suffered an opposite market reaction – technology and consumer staples all trended masonlower. Healthcare, financials (banks) and industrials (manufacturing) all benefitted from Trump’s victory. Why so? These companies now have better future prospects from a regulatory standpoint under a Trump presidency and Republican Congress. Over the past 18 months these sectors have been under intense pressure and thus their stock prices have reflected little to no gain.  Now, with Trump’s promises of cutting taxes and fiscal stimulus packages, these companies spurred last week’s surge. The prospects of higher inflation (which should support an interest rate increase) and increased government spending, all with decreased regulation are good indicators for future stock market growth.  Further, many of our analysts suggest this recent increase is the beginning of a general market wide rally that could last into 2017.

Many of you are probably wondering if your portfolio(s) gained with last week’s rally, yet the answer isn’t a simple yes or no.  As you know, we do not recommend a strategy of timing the market nor do we focus on short term results.  In considering the prospects for a Donald Trump victory, we didn’t recommend aligning a portfolio to investments that necessarily benefitted from his win. The sectors that stimulated the market gain following the election were sectors that have underperforming for much of the past year. As the DOW index increased, the S&P 500 and NASDAQ have lagged.  The DOW is a market index based on just 30 stocks – half of which are concentrated in the sectors mentioned above.  The stock portion of your portfolio, however, resembles a combination of the S&P 500 or NASDAQ indices, containing upwards of 3,500 U.S. companies. These indices provide a much better market barometer, as well as diversification.  Further, it is doubtful you have an investment allocation 100% in stock investments; but rather a well-balanced, risk oriented portfolio containing stocks, bonds, and real estate.  Bottom line, the news media couldn’t predict the presidential race and it is tough to evaluate the true health of our economy with just a week’s performance based on 30 stocks.

Many Americans are in the same boat I’m in – sorting out the vast implications of last Tuesday’s election. We’ve taken time to assess the conditions of the markets and reflect with our analysts to evaluate the future direction of the world economy. We have a plan in place, which we have already started implementing to better position our clients for future changes. That being said, we do not want to react too quickly.  There is still much that will pan out before and after the change in the Presidency.  Interest rates may (and should) increase, holiday shopping will soon be upon us, and the markets will be very sensitive to the rhetoric driven from Washington D.C.  Any stumble could send shockwaves through the markets just as quick as last week’s rally.

Lastly, now that we are free from the election cycle, and all its chaos, we want move on to very important seasons in our Country – Thanksgiving and the holidays.  Both give us an opportunity to say THANK YOU and spend time with the ones we love and cherish.  We sincerely thank you for trusting us with your financial affairs and allowing us to guide you and your families.

If you have any questions or would like to review a specific element of your Life Plan kindly give us a call at anytime.

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How Will the Election Results Affect the Market?

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