Your Finances . . . with Tracy Newquist: It remains to be seen if financial ‘Trump Bump’ will continue in 2017
Published in the January 18 – January 31, 2017 issue of Morgan Hill Life
By Tracy Newquist
Despite a presidential campaign filled with blunt words and far-reaching promises, we’ve experienced a surprise response from the financial markets dubbed The Trump Bump. Following the election of Donald Trump, U.S. stocks have seen a nice jump in share prices as investors began to factor in Trump’s economic proposals. Generally, the economic ideas he campaigned on, such as lower tax rates and infrastructure spending, are seen as good for business, and ultimately good for stocks. Is this just a blip on the charts, or the beginning of a new trend?
To get a better understanding and answer that question, we need to look at the underlying economic data.
First, the economy is showing strength. Gross domestic product (GDP) for the third quarter was revised upwards from 2.9 percent to 3.2 percent, which shows that the economy is steadily moving forward. Corporations are showing a renewed strength.
Corporate earnings from the S&P 500 companies were expected to decline in the third quarter, but actually increased 3.2 percent from the prior year according to FactSet. This is the first year-over-year gain since the first quarter of 2015. And to top it off, the unemployment rate dropped to 4.6 percent in November. This is the lowest it has been since 2007, before the financial crisis. These are all signs of a healthy economy, and a healthy economy is a favorable one for most investments.
With the economy improving, the Federal Reserve announced a raise in its key short-term rate up 0.25 percent at its Dec. 13 meeting for the first time in a year and signaled a more aggressive approach in 2017, when President Trump puts into motion his full-throttle strategy for the U.S. economy.
The Fed has also penciled in three rate hikes in 2017, increasing its prior forecast by one additional hike, to moderate economic growth or slow down the pace of inflation.
It remains to be seen whether the Trump Bump is a short-term reaction to the election, or the beginning of something big.
Overall, our economy is strong and prepared for the December rate hike. Economic and corporate data continues to be encouraging and could set the stage for continued market advances in 2017.
However, remember that it is impossible to predict the future, and it is necessary to be ready, both mentally and with our investments, for surprise volatility.
As investment advisors, a big part of what we do is help our clients put their mind at ease and keep the bigger picture in mind.
Below is a check list to review with your financial professional when the time comes:
• Set clear, realistic, long-term goals
Reevaluate your goals each year as they may change over time.
Know how your overall strategy aligns to your goals and needs.
• Keep investing, regardless of market fluctuations
Investing regularly can take the emotion out of investing and allows you to take advantage of down markets and buy more shares when costs are lower.
Time in the market builds returns, not timing the market.
Expanding your time horizon to five years or more may decrease volatility.
• Diversify — don’t put all of your eggs in one basket
Spreading out your investment choices may allow you to own more of each year’s winners while also potentially lowering your risk. A globally diversified portfolio is the best way to dampen volatility with a reasonable upside.
Rebalance your portfolio to help control risk and capitalize on long-term growth.
If you have any questions about the market or your investments, feel free to call our office. We are here to help. Happy New Year!
Tracy Newquist is president of RNP Advisory Services, Inc., in Morgan Hill. She can be reached at 408-779-0699 or tnewquist@RNPadvisory.com. Investment advisory services offered through RNP Advisory Services, Inc., a registered investment advisor. Securities offered through Securities America, Inc., member FINRA/SIPC. RNP