The election is over and the uncertainty of who will be our President the next 4 years is out of the way. Whether you are happy with the outcome or not, it’s a good time to sit back and reassess your investments. If you read my article previous to this, I said don’t panic and make bad decisions because public policy does not change overnight. Most so-called Wall Street experts believed the stock market would sell off if Trump was elected. I guess they were wrong again. This is why I really try to dissuade people from watching CNBC because it can be confusing. There are many different opinions being thrown at you and it will make you crazy. It all boils down to having a strategy and being disciplined enough to stick with it.
I cannot tell you how many times I have had clients call and want to make a rash investment decision based on an unknown outcome. We did raise some cash prior to the election, but we did not panic and sell everything. We did this to be prudent as part of an overall strategy. The market has gone up significantly since we elected Donald Trump on Tuesday. However, the one area of the market I don’t see being mentioned is the bond market.
Prior to the election, the 30 Year Treasury was yielding 2.5% and today it is yielding 2.91%. This is a huge move in the long end of the bond market. It’s also a big reason why we have seen financial stocks soar since Wednesday morning. The strength of the market the last two trading days has led by the financial sector, pharmaceuticals, and industrials. We have seen some weakness in technology. However, to me, the most significant move in the markets post-election is the rise in long term interest rates. When rates go up, the value of fixed-income investments goes down. I am not sure if investors remember that rates can go up and when they go up it can cause a shift in investment strategy amongst professional money managers. As rates rise, fixed income assets become more attractively priced. Many retirees rely on income from these investments to live, so as the yields of these securities become more and more attractive you will see some shifting of portfolios from an overweight equity weighting toward fixed income. This should pressure stocks to a certain degree. Don’t get me wrong, I am bullish on certain areas of the stock market. There will be some sectors that will outperform in the coming months and years. Identifying those sectors is important to the overall return of your portfolio, but so is taking a hard look at the bond market and taking advantage of the big swing we have seen in interest rates. Some of these securities are already down over 5% and they will boost the overall yield of your portfolio. As always, do your homework before investing and be disciplined.