November will go down as a epic story of two markets. Major bond indices lost around 3.5% and the S&P 500 gained 3.68%. If you own a balanced portfolio, you most likely made no money. Even worse, the SPDR Gold Shares dropped -8.36% and the iShares Europe ETF fell -2.49%. This month had one of the largest monthly discrepancies between growth and value stocks. The Vanguard Growth Index was up only 1.22%, while the Vanguard Value Index was up 6%. The best investment area was the iShares Russell 2000 Value ETF, which finished up 13.17%.
The U.S. economy is back to pre-Great Recession levels:
Brace yourself for a bumpy ride. Like almost all elected officials, President-elect Trump has shown signs of making contradictory statements between what he promised on the campaign trail and how he will govern. This is no surprise to even the most devoted Trump supporters. The epic story of two markets might prove to be premature as investors begin to realize that fiscal policy takes long to implement. The impact of infrastructure spending is years away and the tax cuts are still being debated.
Over the short-term, investors do a terrible job of predicting possible economic recessions, interest rates, and inflation rates. It’s not much different than how the pollsters and major media outlets got the results of the election so wrong. The Trump-led administration is not going to be able to accomplish everything it has promised. Yes, there will be a roll-back of regulations, changes made to trade agreements, lower taxes, changes to Obamacare, and more infrastructure spending. However, all the important details are still missing.
There is much apprehension over Trump’s protectionist agenda. Since the election, technology stocks and multi-national stocks have trailed the market as their supply and distribution chains are global. Many of the largest U.S. companies, which employ millions of U.S. jobs, derive much of their profits overseas. Since Trump cares more than anything about creating U.S. jobs, I believe that much of Trump’s trade threats are a ploy to secure future concessions from foreign governments. Trump’s strength is in the art of negotiation and deal-making.
There will be profound long-term consequences if I’m wrong and whether Trump takes a more protectionism route. Nobody will win if Trump increases tariffs and starts trade wars. Going forward, I expect a war of words rather than actual foreign policy changes, which will make for a volatile market.
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