Investing in the Era of Trump

Investing in the Era of Trump

The stock market, and the economy, have given us signs of hope here at the beginning of the Trump Presidency.  The data has been overwhelmingly positive since the November election.  It seems that investing in the era of Trump has started off with a bang!  Just consider a few data points:

I. The Positives of Investing in the Era of Trump:

  1. The Stock Market is soaring! It has been up approximately 4000+ points since Trump’s election, and that is roughly a 22% jump in the market in less than a year!  The market has been up 6 of the 8 months of his Presidency.  It has included deregulation, the expectation of tax reform, and much more is expected.  Tax reform alone includes significant changes such as: (a) Corporate rate from 35% down to 20%; (b) Immediate corporate depreciation instead of 5 year schedule; (c) Individual rates will go from a 7 bracket structure to three:  12, 25 and 35%; (d) higher standard deduction to offset the lowest rate going from 10-12%; (e) expanded Child Care Tax credit…..  his tax reform plan has the market excited, and if it passes, we could see even more market gains.
  2. Unemployment rate at 4.4%. It is a little up from 4.3% in August.  Still, it is at modern lows and what would be considered full employment by economists.  It is way down from 4.9% he inherited from the previous administration.  The number is not the best number to judge employment – we have said many times during the Obama years that Labor Participation rates are at historic lows… they were and are, at 62.9% today.  But job creation has been robust since the inauguration with anticipation of the “Trump Bump” from tax reform and de-regulation, as mentioned before.
  3. Rising GDP is real and growing. Gross domestic product (GDP) grew in the second quarter 3.1%, and seems poised to continue upward.  The current average for the year is 2.6%, higher than President Obama’s 8-year average of 2.1%, and trending in the direction Trump predicted.  Non-financial sector corporate profits increased 5.9% year over year in the second quarter.  GDP growth is occurring without any of Trump’s agenda being passed, and only on the hope we will see it before 2018.  That is impressive, but certainly fragile as growth based on “hope” will eventually need to see his agenda enacted.

Oil prices are going up, but still well below the highs.  Manufacturing jobs have increased 1.7% since the inauguration, instead of their usual decline.  Sitting here today – increasing GDP, soaring stock market, improving employment… happy days are here again, right?

Well yes, but …

 While many analysts have stated that this market seems “immune” to any outside force slowing it’s climb, that doesn’t mean we should not recognize the obvious risks to continued stock market appreciation.

 II. The Risks to Your Portfolio While Investing in the Era of Trump:

  1. North Korean Menace. The Korean Peninsula sits between the South China Sea and Japan, conflict could cause disastrous results for world trade.  China and Japan are #1 and #4 in trade with US…….South Korea is 6th.  Combined, those three countries represent almost $1 trillion in trade annually with the US.  Both Trump and North Korea have ratcheted up the rhetoric, making it more difficult to back down.  The placement of forces on the Korean peninsula given the volatile circumstances makes for great risk of strategic mistake, and tumbling into war by accident.  War impacts trade routes, and with massive casualties, could cause a significant negative impact to US stocks and the world economy as a whole.
  2. Unprecedented Hurricanes and natural disasters. We have always had natural disasters, but their frequency this year has been a change as compared to the last decade or so.  You would think hurricanes would negatively impact markets – but Irma, Harvey, Maria… they did not reverse the continual market trend upward.  But there are hidden and not-so-hidden costs that can have long term impact on the market.  GDP will eventually feel the weight of these costs, since the economy is hammered in the areas hit by the hurricane, and that has a ripple effect throughout the country.  Oil is an example – the refineries were shut down in Houston and oil prices headed upward as a result… higher oil prices, higher gas prices, lower disposable income, less consumer spending – that’s bad.  And of course – deploying the military for natural disasters makes us less able to respond to global events as they occur.
  3. Terrorism. The horrors of domestic terrorism were brought home this week in Las Vegas.  Our hearts go out to the victims of this horrific tragedy.  Markets kept going up nonetheless.  It doesn’t seem like terrorism, or any tragic event, can stem the tide of these historic market highs.  But over the long haul, costs are adding up. Insurance… security… a change in how people attend events… consumer spending… all will have an impact on corporate bottom lines.
  4. Other Foreign Policy Issues. Iran, which we have a nuclear deal Trump is threatening to pull out of.  And for good reason – it was an awful deal not ratified by the Senate and has made Iran even more powerful in the Middle East.   Iran is a problem that will not go away anytime soon.  Then you have the EU and global banking.  Just consider the timeline of crisis in Europe: (a) the 2008 global crisis; (b) Greek debt crisis in 2010; (c) PIGS crisis that followed which added Ireland, Portugal and Spain to the list of banking and economic collapse in 2013; (d)            Brexit 2016; (e)                Current Spain riots for secession in Catalonia… when you read that list, do we feel like they have moved past their issues in the EU?  Lest we forget Russia in the Ukraine and Syria.

 So, what to do with all of this information?

 On the one hand, the market appears “immune” to the pressing geo-political and economic issues of the day.

On the other hand, you know, deep down, the party (i.e. the market going up every day) can’t go on forever.

We are already in the 8th year of the recovery… driven by the artificial stimulus of the Fed and the easy money of the previous administration. The market has NOT been driven by determinants such as the next Apple product, a breakthrough in food production, or a new hotel chain… simply driven by market stimulants.

 Now we have positive changes that could be heading our way on the fiscal policy side with tax reform and deregulation… but we have massive geo-political issues that should impact markets and global economics as well.

It is possible that now is the time to diversify your portfolio into products that will enjoy the gains of the market, but at the same time, given all the potential risks and geo-political uncertainty, provide you with downside protection when the next bear market begins. Learn more with no cost and no obligation by calling your Ty J. Young Inc. advisor today at 877-912-1919.