Inauguration Day – Market Anticipation
COMMENTARY: It is interesting to see so many different opinions about which way the stock market may be headed, with some extreme bulls and bears making their cases, and with plenty of expectations in between. What is more interesting to us is that the Dow Industrials and the S&P have been in some very tight ranges of around 2% over the past five weeks, with little indication of which way the next larger move may go.
It appears to us that many people are becoming more complacent in their optimism for the stock market and in their assumptions about the direction of interest rates, energy prices, and gold. This type of “group-think” is common after something has made a big move, when the appeal of being part of the crowd is strong. But as we have seen many times historically, when the majority starts to agree about the direction of a future event, something different happens. The markets are all about a choppy road over the longer term, but sometimes we can fall into the expectation the markets may move in a straight line, which of course is not true. We prefer to be more cautious when the majority is bullish, and more aggressive during periods of fear.
With that said, no matter what your personal opinion is about the new administration, there will be new shifts within the financial markets due to fundamental changes that are likely to be made by them.
We see the short-term market as being somewhat “overbought,” in that many stocks have had some larger gains since the election, and may be due for some pullbacks. We have seen the short-term optimism reach levels that are common at trading peaks, and we would be careful at this point about chasing any bullish recent performance that may be driven by emotion over reason.
On the other hand, the longer-term trend continues to be bullish, and we see no evidence the bullish trend is near a top. And so, we would view any near-term pullback that may develop as normal, and no time to make any changes, except to take advantage of any buying opportunities that may develop.
The next 100 days will dictate or strategy going forward that should last for multiple years. We will be updating our clients more frequently during this timeframe.
Below is a series of “chart” updates from our December 9 Blog.
SUMMARY: During the new administrations “First 100 Days” we will be evaluating market reactions and reporting our strategy going forward. There will be increased volatility across all asset classes due to fundamental shifts in policy that are expected to come quickly. We will be monitoring the markets diligently.