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Lindsey Report – December ’16


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Finally! We wrapped up the seemingly never-ending election cycle. From an investment perspective, the reactions in the markets have been very interesting and almost diametrically opposed to all the pre-election predictions. If I heard it once, I heard it a hundred times that a Donald Trump win would cause the equity markets to immediately tank.

Now, those prognosticators were briefly correct. In fact, in the 11:00 hour on 11/8/16 when it started looking like Trump might win, there was a huge reaction. U.S. and European stock futures tumbled (Dow futures were down 750 points). Asian markets, which were open, were falling (Japan’s Nikkei index -6%, China’s Hang Seng Index -3%, etc…)(Business Insider).

It was setting up to be an ugly day for equites on the 9th and a great day for bonds; however, as you likely now know, all the negative sentiment in the markets rapidly dissipated. The Dow Jones actually closed up better than 200 points on the 9th. In the days following, the Dow and S&P 500 have set multiple, new all-time-highs (AP).

On the other hand, it has been a struggle in the fixed income arena. For example, in the first week following Trump’s win, U.S. Treasury yields climbed .34% to 2.15% (this was the largest percentage move in Treasuries since records started in 1962). Since the yield climbed, it also meant that the Treasury values tumbled (LPL Financial). Typically, the more conservative a portfolio, the more fixed income it may hold. Therefore, since the election, the equity portion of a portfolio may have risen, but the fixed income portion likely fell, muting gains.

Many have asked me, “why” the reaction? In short, the markets are looking out six-to-nine months and they are expressing optimism that the Trump policies will be implemented and be good for the economy by reducing regulations, decreasing taxes, being pro-worker and pro-business, etc…. The markets are pricing in success, but I believe they are getting a little ahead of themselves. The U.S. economy is like a massive ship and it does not easily turn, but I’m hoping that this Administration will be successful and justify the current optimism.

 

The opinions voiced are for informational purposes only and are not intended to provide specific advice to any individual. To determine which investments are appropriate for you, consult myself prior to investing. Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. The economic forecasts set forth in this commentary may not develop as predicted and there can be no guarantees that strategies promoted will be successful.

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