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It would be quite an understatement to say that the market has favored the Donald Trump presidency from November until today. I believe that the early part of the market rally can be attributed to general post election relief. The markets had sold off a bit reflecting the uncertainty of the election. The magnitude and duration of the post election rally surprised many investors, myself included. It seems like market sentiment reflected all of the potential positives of Trump’s agenda: Reduced taxes and government, immigration enforcement, Affordable Care Act reform, and a general pro-business environment.
There were many warning signs the the market looked past, until today. The market tends to correct for such oversights in short order. We saw that repricing of risk today, and I believe it marks the start of a change in investor sentiment. Certainly, political focus will be more on Trump rather than his agenda. Consequently, it would be natural to discount some of the positive effects his agenda may have had.
I believe that the market was due for some level of pull-back and this may be merely the catalyst. It remains quite expensive by our metrics; however, we believe that any softness will not be prolonged or significant. We see correction in the 10-15% as normal, necessary, and likely a good buying opportunity. As always, your specific investments should reflect your financial plan.
Here is a quick look at the activity today in the asset markets:
The small cap Russell 2000 dropped 2.8%. The S&P 500 declined 1.8%. Technology has been the strongest sector so far this year, but the tech heavy NASDAQ was down 2.6%. Foreign equities maintained their recent relative strength with the EAFE down 1.2%. Emerging markets were down 1.6%. The VIX volatility index was up a whopping 45% and gold increased 1.8%. Yields declined with the 10-year Treasury dropping to 2.2%. There was strength in the utility and real estate sectors of the equity markets, likely influenced by the decline in interest rates.