By: Lisa Thuer - Senior Trading and Research Specialist
What a contrast from how last January started. It is almost the reverse of stocks that were down last year are up this year. As we have stated before, last year was a difficult year to navigate. You may ask yourself, won't this year be just as difficult with the new regime now in office? What happens now and where do we go from here?
Earnings season is upon us and corporate earnings have thus far been positive. Businesses are optimistic with potential tax cuts, infrastructure spending, employee benefit costs and reduced regulation. Bringing earnings back from overseas would be a bonus for shareholders and the stock market. However, this all takes time and we still need to keep both hands on the wheel. We know in the political world not everything gets done as planned nor as fast as we would like it to.
So regardless of your views on our current Commander-in-Chief, we still want America to succeed and we are all Americans. We all want our portfolios to increase regardless of who is in office. Now with all the election noise behind us and some will probably continue, we are moving forward. Towards the end of last year we started adjusting investments going into 2017. There will be additions to current holdings and reducing others. We still continue to like dividend payers, technology, consumer discretionary, financials (regional banks), and small companies. We will continue to hold alternative investments, however we will be reducing our holdings and allocating funds towards growth or income based the portfolio. As stated above, we will remain diversified and weather the storms and the tweets.
As always, do not hesitate to contact us should you have any questions or would like to come in and meet with a KFA team member.
Things we can cheer about: the Election is over and the Cubs did win the World Series, so now let’s move forward. Post-Election, the market has seen some strength with some sectors preforming better than others. The bond market has reacted with rising bond rates. KFA has been analyzing and processing all the different aspects of the election and what it means for our portfolios. Obviously the election had gone a different direction than most had expected it to go. Therefore, there will be adjustments made to our portfolios. The economy is still doing okay and based on some assumptions it will do better in the foreseeable future. However we are expecting some kick up in volatility with the regime changes and therefore hope to take advantage at that point in time. It may seem cut and dry as to areas of investing but we have to look down the road as to how the change in policies will affect various sectors and industries.
Some of the assumptions we are basing investment decisions on are as follows:
- The Federal Reserve will most likely increase rates December.
- There will be some form of Tax Reform for individuals and corporations.
- Repatriation of corporate earnings/Tax Holiday which means bringing money back into our country which will benefit shareholders and also hopefully create jobs in the U.S. also.
- Inflation will likely occur.
- GDP should tick upward.
- There should be a better business climate with possible Dodd-Frank reform which means less regulation but in a good way.
- Infrastructure spending which will create jobs and improve our roads and bridges to name a few.
- Some sort of Healthcare reform will take place.
- The dollar has gotten stronger and will likely remain strong.
- Bond pricing has gone down and yields have gone up.
Some of the stock price run up has been quick and rapid (overbought) and the bond pricing also has gone the opposite way also quick and rapid (oversold). Taking a step back and letting it settle down, we will be adding to positions in the areas that will benefit from these assumptions. In these upcoming days based on the market movement, we will be adding to Financials, Healthcare, Materials and Technology sectors which are on the forefront.
Should you have any questions, please do not hesitate to call one of our KFA Team Members.
We have all just witnessed a historic election that may forever change politics, as we know it, in this great country. It is still very early to know how all the pieces will be picked up by supporters of candidates on both sides as we learn to once again come together after supporting a favorite candidate. As is always the case, no matter the outcome, we have to come together to move our economy and country forward so that all Americans can benefit in spite of our individual opinions or beliefs.
This election has truly been historic due to a difference in the path to winning office. History shows there are things you typically do to get elected, but Donald Trump showed that without large financial backing and party support that is common he was able to win the election. For these reasons this election was historic.
As we have been reading and digesting plans put forth by Donald Trump during the campaign we do know there are areas that should benefit such as infrastructure and defense. As with any campaign there are many things said or promised that we may not be able to count on actually coming to fruition. As some have suggested, we really have an Independent as President with a Republican Congress. Will this create a balance of power that seems less obvious today? It is going to take time to see what actions become reality.
Aside from the large stock market futures drop during the late but early hours of election results we are not seeing a massive sell-off that some expected. We do expect to see continued volatility over the coming weeks. Investment choices may change slightly dependent on policies put in place during the early days of office which we will await.
We believe your portfolios are invested to weather a short and long term horizon. We feel any changes made may only be to increase or decrease an allocation to a specific sector. Prior to the election we worked to position portfolios for any outcome.
We hope for the benefit of all Americans that those elected into office will serve in our best interest and will truly take their elected office seriously. We will continue to watch and listen for any changes we feel may change your investment portfolios and will act as necessary, if so.
We thank you for your continued support and encouragement.
Kabarec Financial Advisors