Finally!! With the 2024 Presidential Election behind us we thought it was appropriate to discuss the outcome and what we will be doing strategically.
While not a surprising outcome for the presidency, we were amazed at the magnitude of the victory for President Trump, the Senate flip to Republican, and what looks to be the outcome in the House of Representatives. As we previously shared, on average, divided government has historically yielded the best results for the S&P 500 during each presidential term. We are now looking at a Republican sweep and admittedly are mildly concerned at the effects that this may have on the stock and bond markets. Politics alone should not shape investment policy, however. If one day is any indication, the stock market is not fearful of a red sweep, in fact quite the opposite. It’s possible the market is not reacting only to the election results, but being relieved to have a peaceful outcome so that it can get back to focusing on the things that matter more: corporate earnings, employment, interest rates, and growth.
As previously discussed, we are much more focused on solid economic data and strong market fundamentals than who resides at 1600 Pennsylvania Ave. The economy continues to perform better than expected, especially as it relates to employment and GDP. Corporate earnings for Q3 were positive overall and are expected to grow almost 10% next year. The Federal Reserve foreshadowed its dovish posture over the past several months and has now reduced short term rates twice by a total of 75 basis points since September. Ironically, since that first cut, yields on the 10-year Treasury bond have increased by 65 basis points. This is something we are keeping an especially close eye on.
So where do we go from here?
When President Trump won the 2016 election, the S&P 500 was up 5% from election day through year end. There was outsized performance in small cap stocks (up 14%), financial stocks (up 17%), energy stocks (up 9%), and industrial stocks (up 8%). Technology stocks lagged the S&P 500 during the same period after leading the index before the election in 2016. There’s likelihood for that scenario to repeat itself in the short run. We do believe the market has and will continue to broaden out into other asset classes besides technology stocks and the ‘magnificent seven’. This is welcomed and healthy! We still maintain our preference for high quality stocks with positive revenue and earnings growth as well as free cash flow generation. Many of these stocks fall within the technology sector.
Our client portfolios were already positioned to benefit from continued economic growth and thus strongly participated in the robust market rally of 2023 and 2024. We are now in the rare environment where growth and corporate earnings are healthy, while at the same time, interest rates (controlled by the Fed) are coming down. Remember, “Don’t Fight the Fed.” The artificial intelligence revolution is real and still in the very early stages so we look for companies to create even more efficiencies and be more productive, keeping profit margins strong. We suggest being near the upper end of equity allocation targets, but not necessarily meaningfully over-weighted to stocks given the huge market run from the previous two years coupled with elevated price/earnings multiples. However, PE multiples are a very bad market timing tool, and alone, not a reason to reduce equity allocation. So, the bottom line is that we are not making any material changes given this week’s election results.
In the meantime, we will look to do any tax loss harvesting between now and year end. Fortunately (or unfortunately), there are not many losses to harvest currently. We are always searching for new positions to purchase, but have a high bar and strict constraints to control risk. Finally, we are keeping a close eye on the bond market as a 5% 10-year Treasury (currently 4.35%) is worrisome to us. An increase in government yields due to inflation concerns will undoubtedly hurt borrowing demand and specifically harm the housing market. Assuming interest rates don’t spike, we think the stock rally will continue into 2025, albeit at a much slower rate than the previous two years.
Our team is here to help provide you guidance and support, so if you have any questions, please contact us at 847-495-2464 or info@TrifectaCapitalAdvisors.com.
Insights
Election Outcome: What It Means for the Markets and Your Investments
Finally!! With the 2024 Presidential Election behind us we thought it was appropriate to discuss the outcome and what we will be doing strategically.
While not a surprising outcome for the presidency, we were amazed at the magnitude of the victory for President Trump, the Senate flip to Republican, and what looks to be the outcome in the House of Representatives. As we previously shared, on average, divided government has historically yielded the best results for the S&P 500 during each presidential term. We are now looking at a Republican sweep and admittedly are mildly concerned at the effects that this may have on the stock and bond markets. Politics alone should not shape investment policy, however. If one day is any indication, the stock market is not fearful of a red sweep, in fact quite the opposite. It’s possible the market is not reacting only to the election results, but being relieved to have a peaceful outcome so that it can get back to focusing on the things that matter more: corporate earnings, employment, interest rates, and growth.
As previously discussed, we are much more focused on solid economic data and strong market fundamentals than who resides at 1600 Pennsylvania Ave. The economy continues to perform better than expected, especially as it relates to employment and GDP. Corporate earnings for Q3 were positive overall and are expected to grow almost 10% next year. The Federal Reserve foreshadowed its dovish posture over the past several months and has now reduced short term rates twice by a total of 75 basis points since September. Ironically, since that first cut, yields on the 10-year Treasury bond have increased by 65 basis points. This is something we are keeping an especially close eye on.
So where do we go from here?
When President Trump won the 2016 election, the S&P 500 was up 5% from election day through year end. There was outsized performance in small cap stocks (up 14%), financial stocks (up 17%), energy stocks (up 9%), and industrial stocks (up 8%). Technology stocks lagged the S&P 500 during the same period after leading the index before the election in 2016. There’s likelihood for that scenario to repeat itself in the short run. We do believe the market has and will continue to broaden out into other asset classes besides technology stocks and the ‘magnificent seven’. This is welcomed and healthy! We still maintain our preference for high quality stocks with positive revenue and earnings growth as well as free cash flow generation. Many of these stocks fall within the technology sector.
Our client portfolios were already positioned to benefit from continued economic growth and thus strongly participated in the robust market rally of 2023 and 2024. We are now in the rare environment where growth and corporate earnings are healthy, while at the same time, interest rates (controlled by the Fed) are coming down. Remember, “Don’t Fight the Fed.” The artificial intelligence revolution is real and still in the very early stages so we look for companies to create even more efficiencies and be more productive, keeping profit margins strong. We suggest being near the upper end of equity allocation targets, but not necessarily meaningfully over-weighted to stocks given the huge market run from the previous two years coupled with elevated price/earnings multiples. However, PE multiples are a very bad market timing tool, and alone, not a reason to reduce equity allocation. So, the bottom line is that we are not making any material changes given this week’s election results.
In the meantime, we will look to do any tax loss harvesting between now and year end. Fortunately (or unfortunately), there are not many losses to harvest currently. We are always searching for new positions to purchase, but have a high bar and strict constraints to control risk. Finally, we are keeping a close eye on the bond market as a 5% 10-year Treasury (currently 4.35%) is worrisome to us. An increase in government yields due to inflation concerns will undoubtedly hurt borrowing demand and specifically harm the housing market. Assuming interest rates don’t spike, we think the stock rally will continue into 2025, albeit at a much slower rate than the previous two years.
Our team is here to help provide you guidance and support, so if you have any questions, please contact us at 847-495-2464 or info@TrifectaCapitalAdvisors.com.