No, This Time Is Not Different
By: Roger Nusbaum, AdvisorShares ETF Strategist
A day or two after the election someone (not a Trump fan) asked me about selling out of the market as they apparently thought the market would go down. This is a great example of something that repeats over and over in the market and the thought process of market participants.
Before the election there was a widely accepted view that a surprise Trump win would be bad for the market. This was partially validated by that quick crash that occurred over night on November 8th. Of course, the crash snapped back very quickly and the equity market’s immediate reaction has been positive. Maybe that will change or maybe not but equities did not exhibit fear in the first few weeks.
Markets do the “unexpected” all the time and this might be what has occurred here. Certainly, there will be instances in the future where one outcome seems certain but then the opposite will happen. This is exactly why having a disciplined investment process that you can stick to is so important as opposed to guessing as to whether some event, like an election, will be good or bad for markets.
If Trump turns out to be bad for equities, the market will do what it always does. On its way to down a lot it will first go down a little and breach its 200 day moving average or have a death cross (50 day moving average crossing below its 200 day moving average) or some other widely known breach that precedes large declines. From that standpoint, this event is no different, no event is different. As a reminder, history shows that fast declines tend to snap back quickly, it is the slow declines that have done more damage. Even after the crash of 1987, it took less than two months for the market to bottom.
To be clear, the reasons are always different but the market behaviors aren’t. Stick to your process and don’t try to guess.
A recent Barron’s cover story focused on the need for infrastructure projects. This never quite panned out under Obama (doesn’t matter who’s fault it was, it didn’t happen). In that article, Barron’s made the case for again issuing Build American Bonds. Their argument was that this would not add to the debt (they are issued at the state level) and would allow the states to prioritize what needed to get done. Barron’s was critical of the Trump plan currently on the table which would simply provide tax credits to companies taking on infrastructure projects. The logic against the Trump idea was the expectation of a mismatch between what is most needed to be done versus what corporations would want to do. There is no question that there would be inefficiencies with either path but the Barron’s argument resonates with me.
The other domestic issue that desperately needs to be addressed in Social Security. 2034 isn’t that far away (that being the year that benefits would seemingly need to be reduced by about a quarter). Although the numbers vary widely depending on the source, there is no question that the country wildly under-saved for retirement. Something will have to give at some point (benefit reduction that is less than 25%, higher FICA, increasing the retirement age further) and it won’t be popular. Politicians don’t want to do the unpopular thing but they’re going to have to. I am not forgetting about healthcare but it is clearly a front burner issue that will be addressed and it will either be better or worse than ACA (hard to imagine it could be worse but never underestimate politicians’ ability to foul something up).
In this context it is worth revisiting the great quote from Joe Moglia, the former CEO at Ameritrade and current football coach at Coastal Carolina University who said “no one will care more about your retirement than you.”