So, last week was interesting, huh? If nothing else, it was definitely a far cry from two or three months ago when investors could check in on the markets only every few days and not really miss much of anything. But after Donald Trump shocked the world on Tuesday night and the news networks first began reporting that the Dow Jones Industrial Average futures were down 500 points (then 600 points…then 800 points), Jeff Saut and I, like most market participants, came in Wednesday morning expecting stock market carnage. In our view, the most likely reaction was going to be “Brexit: The Sequel,” where stocks sold off on the uncertainty before finding a bottom in the subsequent days. So, accordingly, our advice Wednesday morning prior to the market opening was to stay calm, take a breath, and get ready to buy the anticipated dip.
But then a funny thing happened and market sentiment seemed to almost immediately flip just as we published our comments, as if a “Buy” switch had been thrown somewhere between Washington and Wall Street. Despite all indications prior to the election that the market favored a Hillary Clinton victory, investors, when finally forced to consider what a Trump presidency may actually mean, did not exactly hate the possibilities. The complete 180° turn is perfectly summarized by this email from a loyal follower that Jeff and I received just prior to the market opening on Wednesday:
...SELL EVERYTHING! THE END IS HERE!! SELL!! SELL!! SELL!! Well...except Biotech because the risk of price controls is over! Sell EVERYTHING but Biotech stocks!! Oh, and Financial stocks! Financial stocks will do very well with less regulation!! Sell everything but Biotechs and Financials! Of course there's Energy stocks, yeah they will do better with Republicans for sure. OK, we are selling everything EXCEPT Energy, Financials and Biotechs!! I can't sell [the big Tech companies] though because they will bring all that cash back from overseas now [and maybe invest more of it into their businesses]…Heck, if these stocks go up, it will drag ALL tech stocks higher. Alright, alright, we are gonna buy more Technology today! So here is the plan. Sell everything except Technology, Financials, Energy and Biotechs! But everything else has to go! Although...with the GOP controlling all three branches, they might actually get some infrastructure spending passed. That could really push Industrials and Basic Materials higher. OK, new plan- We buy Basic Material stocks, Industrials, Technology, Biotech, Financials and Energy, but nothing else!! Everything else, SELL! But wait, what if they cut corporate taxes like they promised??? That means more cash for share buy-backs, dividends and capital investment. And, if the GOP cuts taxes for individuals, they will have more for Consumer stocks. Well consumers make up 70% of the economy... that will make everything go higher!!! NEW PLAN!!! BUY EVERYTHING!!!!!...BUY...BUY...BUY!!!!!!!!!!!!!!!!!!
Ultimately, not EVERYTHING went up (Technology, for one), but, as we said in the months leading up to the election, there would certainly be areas of the market that would benefit under each outcome and there was not really a scenario that would undermine our long-term bullish thesis. And, yes, the initial market response is a gut-reaction to what should still be considered a “best case scenario” for the coming administration, but for the first time in a while it appears investors see a path toward much higher stock prices. Even we, as bullish as we have been, have admitted that while the market likely had a high floor underneath it that would prevent major losses, conditions weren’t SO great that we were going to see stocks take off and never look back. There is now at least a better chance that happens.