State of the Market After the 2016 Election

The election is behind us, and there have been some seismic shifts in the market going on over the last week, especially over the past few days. Some of these shifts are hard to explain but they seemed to be trying to figure out which sectors will be “helped” and which will be “hurt” in a Trump administration. In addition, after years of sub-par growth, the market seems convinced that cyclical growth has returned and inflation is real – what a difference a week makes!

This seems reminiscent of the euphoria around those “shovel ready” projects that occurred after the Financial Crisis, which never materialized. Over the last few months the markets in general seemed to spend much of their time “preparing” for a Clinton victory – and now, some of those market trades have been unwound over the last two days. We are very skeptical of such moves and it would be irresponsible for our process to be focused on chasing thinly-reasoned “themes” based purely upon “hope.”

Many investors are hearing “Dow at record highs” today and some may be concerned that their portfolios are not keeping up. First, let me say that people aren’t invested entirely in the Dow – their portfolios are much more diversified than that. Yesterday, while the Dow was up 1.17%, the S&P 500 was up only 0.20% and the NASDAQ was down 0.81%. How could that be?!? That is an almost 2% spread between indices — that almost never happens! Here are a few more fun (and not so fun) facts:

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  • Emerging Markets were down roughly 2.5% today and 2.5% yesterday. The Mexican market was down 6.8% over the last two days.
  • Amazon is down 5.8% in the last two days.
  • Financials were up 8%, Healthcare was up 5% and Industrials were up 5% in the last two days, while Utilities were down over 6% and Consumer Staples are down 4%.

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There are also, significant “lags” and currency movements that can skew things on a day-to-day basis. For instance, the Japanese market was down 5.36% Tuesday, while the S&P 500 was up 1.11%. Yesterday, the Japanese market was up 6.72% and the S&P 500 was up 0.20%. Meanwhile the US dollar was up 2.2% over the last two days while the Mexican Peso (considered an Emerging Market currency) was down 12.0% after being up 5.5% over the previous 4 days.

Wow. What a ride. But we stick to our process, even during times of temporary dislocation. We construct portfolios to minimize downside risk relative to the market, not to capture every up move. Unlike our politicians, we focus on factual information, not speculation. In summary, we play the long game and you should too.

Market Commentary Now Available

Our market commentary for the fourth quarter of 2016 is now available. Download your copy by clicking the button below.

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Information presented should not be considered specific tax, legal, or investment advice. You should always seek counsel of the appropriate advisor prior to making any investment decision. All investments are subject to risk including the loss of principal.

The information presented was gathered from sources believed to be reliable, however, its accuracy cannot be guaranteed. The opinions, views expressed and the information presented are subject to change without notice and may not come to pass.

No client or prospective client should assume that the information contained herein (or any component thereof) serves as the receipt of, or a substitute for, personalized advice from Lucia Capital Group, its investment adviser representatives, affiliates or any other investment professional.

Raymond J. Lucia Jr. is chairman of Lucia Capital Group, and CEO of its affiliated broker/dealer, Lucia Securities, LLC, member FINRA/SIPC, which is a subsidiary of Lucia Capital Group, a registered investment adviser. Registration with the SEC does not imply a certain level of skill or training. CAA-10724

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