Blocking Out The Noise

December 1st 2016, by Lyle E. Hershey

It has been more than three weeks since, in surprising fashion, our country elected Donald Trump as the 45th President of the United States. Before the election many speculated that if Trump were to win the election, the stock market would certainly experience a downturn. As the vote tallies started to roll in the night of the election and the numbers were beginning to tilt toward Donald Trump, the US stock market futures went down dramatically; however, by the end of the day after the election, Wednesday, November 9, all three of the US stock indices were positive. Since the election, the US stock market has continued to experience positive momentum.

Many ask how the stock market will react to Donald Trump as president going forward. The quick answer is…we really don’t know. Our perspective is that the stock market will continue to behave in a way that is similar to how it has behaved in the past. How has the market behaved in the past? The equity market has generally delivered a positive inflation adjusted rate of return for people who have stayed invested for longer periods of time (10 years or longer). In addition, the stock market has been volatile and unpredictable in the short-term. We believe that regardless of any president or government administration, these stock market characteristics will remain the same. In a nutshell, we are expecting typical stock market behavior.

Having said that, it would not be surprising to see the stock market experience a pullback of 20% or more during the next four years. We have not had a US recession since 2008 – 2009. From a historical perspective it would be unlikely that we go another four years without one. Again, we think that would be true no matter who would have won the election. Even though we feel the likelihood of a recession could be higher, we are not planning to make significant changes to our investment portfolios. Our portfolios are currently positioned to weather a market storm and then be in a good position to benefit from a post-recession recovery.

It can be tempting to allow the emotions we experience related to current events affect our financial decision making. We believe that successful financial decision making comes when we stay grounded in time-tested financial principles. At Master’s we help our clients stay focused on proven financial principles and encourage them to avoid emotional decision making based on the news story of the day.