November has been a great reminder that financial markets can be unpredictable in the short term. In the four weeks prior to the election, financial markets seemingly reacted to polling data in a very predictable manner. If Clinton was trending higher the Dow Jones stabilized and moved up, if Trump rose in the polls the Dow declined. Had I been a gambling man, this was a no brainer; if Trump did win the election, surely the stock markets would drop, at least a little, the next day. On election night, that was just what market futures were projecting. However, the Dow quickly reversed course and posted very nice gains by the end of the day. Since then, the Dow has continued to rise to new record highs, slightly above those seen in August.
Another surprise has been in the bond market. Over the few days following the election, the rate on the 10 Year U.S. Treasury rose nearly 1/2 of one percent. With the jolt in rates, the Barclays Intermediate Aggregate Index, down 2%, is on pace for its worst quarter since 2013.
On the other hand, other markets reacted just as analysts were predicting. A big issue for Trump had been to protect American jobs and trade. After the election the U.S. dollar strengthened and international stocks and currencies have struggled (especially the Mexican Peso).
Each of these market moves led to a period where U.S. stock prices reached new records highs, while broadly diversified portfolios investing in bonds and stocks across the world remain below their high water marks. In the short term, markets are unpredictable and we do not make investment decisions based on temporary expectations or feelings. Over the long term, success depends on the price you pay and the fundamentals of the investment opportunity.
If you have any questions on this discussion or how to position your investments for the future, please contact your Security National Bank advisor today. Have a Happy Thanksgiving.
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