The "Trump Trade" - Boom or Bust?
Since the election of Donald Trump, traders and investors have bet that we are entering a pro-business, fiscally-juiced inflationary environment. If so, that will bring about higher interest rates and falling bond prices. The graphic above illustrates the historical performance of various stock and bond sectors since Mr. Trumps surprising victory.
Equities & The "Trump Trade"
The value of the U.S. Dollar – relative to competing currencies – has continued its ascent, putting pressure on multinational companies who convert devalued foreign earnings into bloated U.S. Dollars; thus, decreasing profitability. Financials benefit from anticipated relaxed regulations and rising rates. The Financial sector has been a big winner of the "Trump Trade" and has seen a strong inflow of capital, pushing share prices higher. On the other hand, Utilities and Real Estate are facing the head winds of rising interest rates. All-in-all, the “Trump Trade” has been a net positive for domestic stock indices which have risen to new highs.
Rising Rates & Bond Troubles
If you would appreciate a higher return on your savings account, then you will welcome the prospect of rising interest rates. On the other hand, mortgage seekers are fretting the added costs to their monthly budgets. The spike in interest rates has shocked existing fixed-income investors as well. Recently, as rates have spiked, high quality, long-term bond prices have dropped; leaving many bond owners shocked and left wondering if this is truly the end to a thirty-year bond bull market.
Let Them Speculate
If you're a long-term investor and are letting the uncertainty of the present derail your investment strategy, you have fallen victim to the biggest pitfall investors face - emotions.
It's never a good idea to be lured by big promises, or paralyzed by fear. The truth may seem evident, but reality lies in the dilution of extremes. Whether you believe Donald Trump will lead to the apocalypse or be the savior of the World, compartmentalize your emotions to the appropriate venue.
Right now, there is a massive amount of speculation occurring in the markets. Buying begets more buying, and selling begets, of course - more selling. Eventually a comfortable equilibrium will be found. Buying on the dips, and reallocating out-sized gains during these times is key. Continue to invest per your time horizon, risk tolerance, and objectives. Your future self will thank you.
Warm Regards This Holiday Season,
Jason Loyd - President
Brian Wieland, CFP - Investment Advisor Representative
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