Snow has started to fall, temperatures are dipping and families are hunkering down for the change to the winter months as we approach the holiday season. And change has been the theme for the end of 2016: the Chicago Cubs won the World Series, ending the longest championship drought in all sports and an unexpected challenger has won the presidential election. Let’s see how this theme of change relates to our 401k portfolios:
Summary, Last Qtr: Last quarter saw a good amount of volatility as the presidential election cycle was in high gear and rhetoric was being thrown around from all sides. The night of the election saw the markets fall by 800 points, only to recover by the next morning. Since that time the markets have had a “Trump rally” as investors speculate on the new Fiscal Policy. The Federal Reserve decided to stand pat in their position and keep rates the same in November. It is expected that the Fed will raise rates in December, but that is not a guarantee as the Fed evaluates data as it comes in, not to mention hesitation to implement monetary policy until the new president is inaugurated and implements the deals with Congress to implement the new fiscal policy.
Our Commentary: Volatility comes in all flavors, and volatility to the upside is no exception. The markets have responded to the president elect with a “Trump rally”, as the market sees the fiscal policy of lower taxes and infrastructure spending, plus the reduction of regulation, as a plus for businesses. That, in turn, should be better for the employment picture. The latest employment data was good, but there is a sizeable amount of people who are displaced workers. Just the potential of a pro-business fiscal policy has created the “Trump rally”, hence the upside volatility. If this speculation is true and the fiscal policy spurs the economy, the Federal Reserve may get more “hawkish” and raise rates faster than previously expected. If so, this is a scenario that is good for stocks and bad for bonds, although bonds are still necessary in a portfolio. This fits with our long-term view of “lower for longer” bond returns but a decent environment for stocks, with the potential of a bullish market for stocks.
Our Investment Committee periodically monitors the markets and will continue to provide comments at the beginning of each quarter. Each portfolio is different and we recommend getting individual help, which we are happy to provide.
Do your best to stay warm!
Brian Dorn, AIF – Investment Committee Chairman