Stocks: Will the Trump rally last?
“How much more can the ‘Trump bump’ lift the stock market?” asked Stan Choe and Pan Pylas in the Associated Press. U.S. stocks have surged since Election Day, with the S&P 500, Dow Jones industrial average, and Nasdaq all trading at record highs. Wall Street is bullish on President Trump’s promises to cut taxes, slash regulations on businesses, and boost infrastructure spending. Meanwhile, the economy continues to pick up steam, driving corporate profits higher and inspiring investors to keep plowing more money into stocks. But “skeptics see cause for caution.” About 44 percent of all the goods and services sold by S&P 500 companies in 2015 went to customers outside the U.S. If Trump were to keep his campaign promise to tear up free trade treaties and slap tariffs on imports, other countries could retaliate with similar measures, leading to lower sales and profits for U.S. companies that depend on foreign markets. “With a president who prides himself on unpredictability,” investors might want to prepare themselves for a bumpy ride.
There’s plenty of evidence “that the stock market may be due for a breather,” said Anne Kates Smith in Kiplinger.com. Stock valuations are sky-high right now relative to expected corporate earnings, which means the market could be headed for correction regardless of the ongoing political drama in Washington. A downturn is inevitable, said Chris Taylor in Fortune. The average bull market length is 54 months—41 months shorter than the Obama-Trump bull run, through January. When the market does dip, any moves you make should be driven by a long-term plan “rather than the emotions generated by the last thing you heard on CNBC.” To avoid rash decisions, put your portfolio on autopilot. You could use target-date funds, which shift investment allocations automatically into lower-risk categories like cash or bonds as you get closer to retirement. Robo-advisers like Betterment and Wealthfront can also “rebalance your portfolio automatically when the prices of one asset class get out of whack.”
Some of my liberal-leaning friends are convinced they should cash out of the stock market, said Neil Irwin in The New York Times. They’re certain Trump’s policies will lead to a crash. Perhaps they will be proved right, but remember this: Conservatives largely dismissed the stock market rally under President Obama, predicting his efforts to end the recession would come up short. But “anyone who put their money where their mouth was,” into cash rather than stocks, ended up missing out on a 182 percent gain in the S&P 500. Likewise, many liberals predicted the Bush tax cuts would hurt markets by blowing up the budget deficit, only to watch stocks rise steadily until late 2007. In other words, “letting one’s political opinions shape investing decisions is a good way to lose money.”