In the aftermath of the election, the stock market has been performing quite well. This performance has propelled the market averages to all time highs. This market strength has been especially prevalent among smaller company stocks, though larger stock indices have also established new highs.
For many market participants the strength of the stock market has been quite surprising. The consensus going into the election was that Trump winning the presidency would be a negative for the stock market because of the added uncertainty that would be created.
What has essentially changed is that the outlook for the economy has improved. The overall consensus currently is that a Trump presidency would provide more stimulus to the economy.
One area of stimulus would be greater infrastructure spending on things such as roads and airports. Also there would be less regulation, which would lower costs for businesses. Finally, tax rates for both corporations and individuals would be lowered, with less deductions allowed, which should be a positive for the economy.
In addition recent economic reports have been on the stronger side. A survey of purchasing managers for manufacturing companies showed improvement for the month of November. The most recent employment report confirmed the steady job growth that we have seen in recent months.
It should also be noted that it is expectations that drives the stock market. While current data is important, it is really what is going to happen in the future that causes changes in stock prices.
Clearly expectations, at least in the economic area, are currently more positive for a Trump presidency than they were at the time of the election. Obviously expectations can change, so it remains to be seen if the current strength in the stock market can be sustained.
Among the greatest concerns of a Trump presidency have been in the area of international affairs. For financial markets this is especially important for trade and immigration policy.
The current consensus is that some of the campaign rhetoric in these areas will not be as draconian, as was originally feared. Of course it still remains to be seen what changes will take place on trade and immigration, and what the potential consequences might be.
While the U.S. stock market has been strong, not all financial markets have performed well recently. Developed international markets have generally risen, since the election, but emerging markets have performed poorly.
The bond market has sustained losses since the election, as longer term interest rates have risen significantly. Therefore, investors who have money in bond funds will likely haves seen the market value of those funds having declined over the past month.
For investors who have balanced portfolios, which might include international stocks and a bond fund, recent gains will have been less versus those investors who are invested primarily in U.S. stocks. Nonetheless, for the long run having a balanced portfolio does help to decrease investment risk.
With the recent strength in the stock market it is a good time for investors to see if their current weighting in stocks are higher than their targeted levels. If that is the case, now might be an opportune time to lower positions, especially among smaller stocks, which have been especially strong.
For those who are not overexposed to the stock market there would be no compelling reason to necessarily want to sell now The stock market has established new highs many times, and as long as company profits are increasing new highs should be achieved again in the future.