Market implications of Trump’s second term

Equity markets rallied strongly, while treasury yields surged (bond prices lower), and the U.S. dollar surged.

Investors should restrain their optimism/pessimism and remain focused on their investment goals.

This early market reaction has many notable reasons. Below are some quick bullet points:

Markets priced out the possibility of a contested election. This was a big risk.

The reduction of uncertainty is almost always a positive for asset prices. Corporations can prepare to adapt to policy changes.

Markets are adjusting to the Trump victory.
- Bond yields are rising partially due to a relief rally. In the near term, recession risk is lower. The economy can withstand higher rates, but rates may also be rising due to an increased chance of higher inflation. This potentially means higher than expected rates in the future.
- The positive stock market reaction was mostly focused on potential pro-growth policies and deregulation. In the near term, recession risk is lower. For now, stocks may be ignoring or pushing off the risks or tariffs and rising deficits.
- Stocks rallied with small cap stocks leading the gains.
  - Financials, Energy, and Industrials were the sectors with the biggest gains.
    - The energy sector is rallying on “Drill, Baby Drill!” but the energy sector also rallies ahead of rising inflation expectations. Energy may be rallying for both reasons.

It is important to stay focused on your own financial goals and avoid being too optimistic or pessimistic based on political views.

The best defense against the unknown is a diversified portfolio.

As always, let us know if you have any questions.

Best,

CRA Investment Committee

Matt Reynolds CPA, CFP®

Tom Reynolds, CPA

Robert T. Martin, CFA, CFP®

Gordon Shearer Jr., CFP®

Jeff Hilliard, CFP®, CRPC®

Joe McCaffrey, CFP®

Phillip Tompkins, CFP®

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