The 2016 presidential election was filled with uncertainty, including how a President Trump or a President Clinton would affect the stock market.
Last summer, when we discussed the potential impact of the election on the broader economic picture, many experts believed that Donald Trump would be bad for the markets. That prediction seemed to bear out on Election Night: as Trump's odds increased, the futures market decreased.
But then, around 2:00 am, a funny thing happened. The market flipped. And we've been riding a Trump rally ever since.
On today's show, we discuss the Trump rally and the market outlook for the rest of 2017.
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Insights from Today’s Podcast on the 2017 Outlook and Trump Rally
Here are the key takeaways you need to consider the next time you sit down with your financial advisor to review your portfolio. At Keen Wealth, we like to remind our clients that the economy is bigger than any one company, or any one person – even the president. That’s why we advise against trying to time the market, and instead, focus our clients' investments on tried and true strategies that bear fruit through even the most turbulent times.
1. Compounding interest: The 8th Wonder of the World
Credit Ben Franklin for that investing chestnut, but at a moment when the country, and the world, still feels unsettled, and with the 2008 economic crisis still fresh in everyone's mind, it's important to consider the big picture.
And looking at the stock market through a wide lens, the big picture is still an arrow trending up. Since 1950, the Dow Jones Industrial Average has increased by a factor of 100 – not 100%, but 100x. The stock market is, by any measure, a powerful wealth-building tool for those that have a plan in place and who stay the course. Right now, the Trump rally is yet another point on that upward trajectory. As we've discussed on a previous podcast, when you're making financial plans, it's important that you don't let preconceived notions, or your feelings about a particular president, affect your investment strategy.
2. The end is the beginning.
The Trump rally is real. From January 1 through April 14, the S&P 500 Index is up 4.6%.
So now what?
Keen Wealth's research providers reviewed market data going back to 1988, and found that the average return on the broad US stock market for the first 100 days was 2.7%. 2017 is actually the tenth year since 1988 that the average return began at about 5%.
And how did the rest of those years play out?
It's important to remember that past results in no way guarantee future profits. But, in nine of the ten years that opened at about 5% positive after 100 days, the market ended the year significantly higher: 9.5% on average.
3. Don't try to time the market.
Let's take a closer look at the last year that started up 5%.
2013 was a very good year for the equity markets. But even though the markets were up 30%, the market corrected between 3 and 8% six different times in 2013. In fact, on average, we can expect markets to decline by 13-14% every year. Volatility is normal in the stock market and impossible (and unnecessary) to predict short-term. It's the price investors pay for bigger returns on the portion of their portfolios allocated to stocks. Which is why, again, we at Keen Wealth caution our clients against trying to jump in and out of the markets. Instead, a pre-determined, asset allocated and diversified portfolio that is rebalanced within agreed upon intentional parameters can allow you to harness the inevitable cycles rather than being whipsawed by them.
4. Take Trump out of the Trump rally.
To the dismay of Trump's supporters, and the bemusement of his critics, came whispers that Trump is privately frustrated by how hard it is to be president and pass legislation. That gossip does raise some serious investment questions. If the Trump rally is based, in part, on investors expecting the passage into law of Trump's economic agenda, what happens if those reforms stall? Does the Trump rally stall with them?
As far as the economy is concerned, probably not. Unemployment is down to 4.5%. Consumer spending is up. Housing prices are up. Construction is up. These are all positive market indicators that don't hinge on, say, whether or not Trump can make changes to how the Roth IRA is taxed.
As always, having an updated goal-focused plan in place will help provide you a basis for decision making no matter what issues our economic or political systems throw at us. And make sure you always discuss your options with a fiduciary financial advisor. Together, you can make appropriate decisions and build an ongoing investment plan that works.
Bill Keen on the 2017 Outlook and Trump Rally...
“Don't let the volatility of the stock market lead you to emotional decisions that might negatively affect your long-term financial planning.”
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Bill Keen is a CHARTERED RETIREMENT PLANNING COUNSELOR℠ and independent financial advisor with more than 25 years of industry experience. As the founder and CEO of Keen Wealth Advisors, a registered investment advisory firm, he specializes in providing personalized retirement planning designed to help people thrive before and during their retirement years. With a passion for educating others, Bill regularly blogs about retirement planning, hosts the podcast Keen on Retirement, and has contributed to U.S. News and World Report, Reuters, Wall Street Journal’s Market Watch, Yahoo Finance, and other publications. Based in Overland Park, Kansas, Bill and his team work with clients throughout the greater Kansas City area and across the nation. To learn more, connect with him on LinkedIn or visit www.keenwealthadvisors.com.
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