Market Analysis – December 2016

Market Analysis – December 2016

Expectations are running high for President-Elect Donald Trump and the Republican majority. Nobody knows exactly what is going to happen in regard to Trump’s business-friendly policies for tax cuts, tax reform, looser regulations, and infrastructure spending. With Republicans in majority control of the federal government (House, Senate, and White House) for the first time in a decade, optimism is growing for businesses, investors, and consumers. The University of Michigan reports that consumer confidence, which has been growing for a long time, is now at a 13-year high.

It’s great success

The Brexit and Trump victories are two of the biggest political upsets in decades. Investors who timed out of the market in response Brexit and Trump were hurt financially about their decision. The resilience of the US stock market has proven itself once again.

Stock market results are often defined by investors’ mood about the future. If Republicans can deliver on business-friendly legislation, the mood of businesses and investors will likely remain positive. Obviously, Trump and Republicans could fall short of expectations. The best lesson for investors from 2016 is to not time the market. Determine the most appropriate investment strategy for you and stick with it. We do well when we separate our emotional reactions from our investment process. A Wall Street banker who strongly supported Clinton was quoted anonymously in the New York Times:

We lost. Now it is time to make some money.

Because of the policy expectations, we are having success investing in funds that emphasize financials, industrials, materials, energy, technology, consumer discretionary, and small US companies. In our Stable Growth Strategy, we include the above sectors as much as possible; however Stable Growth emphasizes capital preservation and stability, so while it is doing its job, it is not keeping up with the Trump rally. This is another example of sticking with your strategy. The bond market experienced a lot of drama in 2016 as the 10-year US Treasury Note hit its lowest yield in history (1.37%) on July 8 and then rose to a high for the year at 2.6%. It has since backed off, closing the year at 2.45%. All of our taxable bond funds are still positive for 2016, but most of the tax-free funds are slightly negative. When tax cuts are expected in the future, tax-free bonds drop in value. You should continue to hold bonds to the degree they are part of your investment strategy. We always welcome your calls.

Happy New Year!

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