What Does the Post-Election Rally Mean?

 

Maybe it's just happy that 4-years of campaign crap is all over?

I dunno about you, but I'm pretty exhausted after the past week's comments on the U.S. presidential election - on both sides, it's just tiring. I'm not here to discuss political rhetoric - only the stock market.

When it was apparent that Trump could win, the markets around the world dropped drastically in aftermarket trading hours. One thing I did mention to my friends on social media late on Tuesday night, was that first thing in the morning, they HAD to buy into the Dow -- I predicted (for the reasons below that turned out to be true) that first stocks would tank, but the start a strong run to all-time highs.

Many people saw this as a sign that the markets simply cannot handle a Trump presidency. Unlike half the country, this is not true.  

The fact is, the stock market is not a person. It does not have an opinion on the nature of a person or their character. What it does react to, is speculation on future events and policy. The market loves when things are predictable, and for the past few weeks, it looked as though a Clinton presidency was inevitable. So that's when the market started to price-in and plan for this outcome. Interestingly enough, the market was slowly heading lower leading up to the election anyway. 

So when it looked like Trump was going to win, the market initially freaked out because it was not something it expected. However, when the news started to sink in, financials (in particular) rallied strongly on the prospect of increased spending and a steepening yield curve. Even the 10-year U.S. Treasury yield - which has been quite low in recent years - popped above 2.0%. It doesn't look as though the Fed will be raising interest rates in December as planned, so this is also part of the market shaking off nerves.

What now? Nicholas Colas, the chief market strategist for Convergex, said recently that he thinks the market is set for another 2%-4% rally in the short term. Good news for those who have yet to jump into the market rally yet - you're in for a treat near-term. 

HOWEVER, like everything involved with the stock market, speculation moves the market today. Trump's administration actually has to DO something actionable for the market to react in a meaningful way for the long-run. As my previous articles suggested, a Republican presidency is not necessarily good in the long-run for markets, but then again we have never had a CEO as president for the United States...so who knows! Maybe it will be great, maybe it will tank -- but plans and not "feelings" are what drive the market to move. 

Always keep this in mind. 

(I'll leave you with the year-to-date performance of the Dow...awesome stuff!)