Although the elections are still subject to controversy, November 8th is behind us and equities seemed relieved. The S&P 500 was up 3.70% for the month with 3.38% of those gains coming after the election. Bonds were uncharacteristically volatile as interest rates jumped causing values to drop. The 10 year Treasury yield increased from 1.80% to 2.36% during the month with the Barclays Aggregate Bond Index falling nearly 2.5% as a result. 1 Overall the month was mediocre for balanced investors.
The post-election stock market surge was not evenly distributed, while the S&P 500 gained 3.38%, the Dow Jones Industrial gained 4.31% and the NASDAQ Composite only gained 2.45%. Looking closer at the stock sectors, the chart below shows that financial and energy stocks saw some quick benefits from the election results as some investors believe Trump will be quick to deregulate those industries. Sectors like technology and healthcare (currently emphasized by the Top Stocks) have yet to benefit from the post-election euphoria. Traditionally less volatile sectors like consumer staples and utilities have taken 4% losses over the last month, so many investors aren’t necessarily seeing their portfolios hit all-time highs like the Dow might be.
The latest unemployment report came in at 4.6%2, which is the lowest rate since August of 2007. This improvement was largely helped by retirees leaving the labor force, but it could be viewed as another reason for the Fed to restart its campaign of raising short-term rates. The Fed last raised rates by ¼% in December 2015. 3 We believe the interest rate increases will be slow and steady, but that could change if inflation or GDP growth start to heat up. This hasn’t been an issue for several years now, but new legislative policies could make a difference.
Many pundits in the financial media cite that we are long overdue for a new recession. The slow growing economy can sometimes feel like we are already in one, so the president-elect will have a huge task on his hands from day one. How do you keep a frail economy from going into a recession with the labor market already at full employment? Using the nightly news as a gauge, GDP growth doesn’t even make the top 5 of “most important” presidential issues, so his plate is very full.
As we gather together over the coming weeks, I hope we find comfort with our loved ones and set politics aside. Our country seems to be very polarized, so hopefully the Christmas spirit will help us all come together, one nation under God.
Have a Blessed holiday season.
1 Thomson Financial
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