Although still positive for the month, the so called Trump Rally took a breather in January. There is concern that Trump’s three business-friendly intentions for 1) tax reform, 2) looser regulations, and 3) infrastructure spending are being undermined by anti-immigration actions, protectionism, economic isolation, trade wars, and border taxes. The business and investor communities want Trump to focus on the first three areas, which will boost the economy with effective design and execution.
As fiduciaries, the Bell team sits on the fifty-yard line in the political arena. Our job is to put our clients’ interests first and take care of their financial futures. Our professional concern about politics is to do the best job for our clients. The stock market has rallied since November 8 because some of Trump’s policies have the potential to boost the economy. Since the recovery from the Great Recession began in 2009, the average annual growth in US Gross Domestic Product has been stuck at 2%. Effective fiscal policies from the President and Congress could cause a breakout in growth that would last for years.
There is talk that the stock market may be growing skeptical of Donald Trump. Can he avoid economically negative distractions? For decades, I have followed Greg Valliere, a Washington DC strategist who objectively covers the relationship between politics and investments. On January 31 in his daily report Morning Bullets, Greg advises, “Do not underestimate Donald Trump.” Greg also reports that behind the scenes, House Ways and Means Committee Chair, Kevin Brady and staff are working on a robust tax reform bill that should clear committee by spring, making it possible for Congress to pass substantial and economically positive tax reform in 2017. This is what the stock market is looking for, and many problems in our corporate tax code will have bi-partisan support for reform.
There are eleven business sectors followed by stock market analysts. Seven of these sectors were positive in January, led by materials, technology, industrials, and financials. Our Active and Stable Growth strategies favor these sectors. The 10-year US Treasury Note ended January right where it began at a 2.45% yield. Interest rate stability is good for the bond market and helps our Stable Growth investors. Corporate earnings are lining up to grow by double digits in 2017. Stick with your long-term plan, and do not be derailed by politics. We always welcome your calls.
Jim Bell, CFP®
President, Chief Investment Officer