Last week, Donald Trump won the US presidential election and the stock market responded by reaching all-time highs. Not only did Trump win the White House, but it appears his fellow republicans will enjoy majorities in both the House and the Senate. This is interpreted by many as a mandate for change and certainly opens the door to widespread reforms and changes in policy direction. No one knows precisely what this change will bring, but the presumption is that it will be good for the economy and stocks. Below is a picture of the various stock indexes for 2024: one can plainly see stock markets’ ebullient reaction to the election on the far right of the graph.

One can see above, all markets responded favorably to the election results. Last week, Small Caps led, followed by the Nasdaq, with the S&P and Dow Industrials trailing. For those who follow stock markets for a living, we know markets are equilibrium seeking; attempting to price an unknown future. Sometimes, markets get a little ahead of themselves and this is potentially one of those times. We do know last time in office Trump successfully implemented tax reductions that super charged the economy. Stocks performed well during his first time in offices. But the presumption that this term will resemble the last term is an oversimplification of things. Trump’s stated agenda includes tax reductions, tariffs, the lifting of domestic oil production limits, and dramatic reformation of government bureaucracy, to name a few. He will be able to implement much of this agenda given the republican sweep. Nonetheless, we don’t know how any of it will shake out. There are more complexities and uncertainties associated with his new agenda and ability to implement his policies. Moreover, the amount of time required for the changes to make an impact after their implementation is unknown. Simply put; we are going to wait and see how it all plays out. In the meantime, we think it wise not to jump on the equity bandwagon currently. We’d caution against things like buying stocks on margin, or loading up on tech stocks. Rather, we favor the time-tested equity approach we take which includes broad diversification and an emphasis on valuation discipline when it comes to security selection and portfolio construction. These things work well over the long-term, irrespective of which political party occupies the White House.

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DISCLOSURES

The S&P 500 index covers the 500 largest companies that are in the United States. These companies can vary across various sectors. The S&P 500 is one of the most important indices in the world as it widely tracks how the United States stock market is performing.

The NASDAQ Composite is a stock market index of the common stocks and similar securities listed on the NASDAQ stock market. The composition of the NASDAQ Composite is heavily weighted towards information technology companies.

The Dow Jones Industrial Average, or simply the Dow, is a stock market index that indicates the value of 30 large, publicly owned companies based in the United States, and how they have traded in the stock market during various periods of time. These 30 companies are also included in the S&P 500 Index. The value of the Dow is not a weighted arithmetic mean and does not represent its component companies’ market capitalization, but rather the sum of the price of one share of stock for each component company.

The Russell 2000 tracks the roughly 2000 securities that are considered to be US small cap companies. The Russell 2000 serves as an important benchmark when investors want to track their small cap performances versus other sized companies. The Russell 2000 tends to have a larger standard deviation in comparison to the S&P 500. However, it also tends to yield larger returns in positive market environments.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which Investment(s) may be appropriate for you, consult your financial advisor prior to investing. Information is based on sources believed to be reliable, however, their accuracy or completeness cannot be guaranteed.

No investment strategy can assure success or completely protect against loss, given the volatility of all securities markets. Statements of forecast and trends are for informational purposes and are not guaranteed to occur in the future. All performance referenced is historical and is no guarantee of future results. Securities investing involves risk, including loss of principal. An investor cannot invest directly in an index.

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