Bill Mann discusses the market fall and rise since election day. A lot has happened, read on to find out what he believes is to come.
Dear Fellow Fool Funds Shareholder:
Roughly, there are about 50% of Americans who are pretty OK with the concept of seeing Donald Trump become president, and another 50% who aren’t. What nearly 100% of this group would agree upon is this: Change is coming.
To which I ask: “Is it?”
I want to show you a picture.
I'm not sure where I saw this picture, and it perhaps looks unremarkable to you. (And if you’ve seen it before, or even took it, please let me know so that I may give proper credit!) This picture was taken in Stockholm in the early 1990s, and it’s an ordinary scene of a few folks lining up to use an ATM.
Yet it is completely remarkable for one reason. The man with crutches facing the camera is Ingvar Carlsson, and he was, at the time, the prime minister of Sweden.
This is, in some ways, the embodiment of the character of Sweden: egalitarian, humble. The prime minister needs some cash? Well, there’s an ATM nearby, so let’s hope it’s not too busy. And it’s not as if Sweden is some sort of naïf – Carlsson became prime minister when his predecessor, Olof Palme, was assassinated in 1986. This is just how Sweden rolls.
Our country has a character as well. Our president isn't likely to wait in line for a cash machine, even if the Secret Service would allow such a thing. Nonetheless, Americans are individualistic, we are proud, we are by and large welcoming of strangers. These do not change based upon who happens to sit in the executive mansion.
Earlier this month, following the most contentious and bizarre election season in our lifetimes, the United States elected Trump as president. The number of people who are interested in my opinion of a President Trump is certainly vanishingly small, so I won’t proffer it. But remember, this is us:
This photo originated from the Facebook page of the woman on the left – an American Muslim – and it came after she made the affirmative step of introducing herself to this man, with whom she most certainly had some severe political differences. Here’s the thing that I like about this picture – the absolute lack of separation between the two. This picture is isn’t angry or defiant. It’s warm and inclusive.
We’re good people, folks. Not all of us, and none of us all the time, and we are responsible for some really ridiculous things, like batter-fried butter and Kevin Federline. But we do lots of things pretty well – like, for example, the peaceful transfer of power from one administration to the next.
What I can and should speak about is whether I believe the election of Donald Trump will be good or bad for American businesses, and therefore for stocks. Again there are lots of opinions here – most of which have been made by people who conveniently forget that they’d previously opined that Trump had no chance whatsoever of winning. (Pause as I sheepishly raise my hand.)
Certainly, before the election you would have been perfectly justified in believing that the stock market was terrified at the prospect of a Trump presidency. After all, the S&P 500 moved almost perfectly inversely to the likelihood that Trump would be elected. The evidence of investors who believed that a Trump presidency would make American stocks be worth much less was overwhelming. For even if we believe that the market is not fully efficient, one thing it definitely does not do is play games.
In the immediate aftermath of Trump’s victory, markets worldwide voted decidedly in the negative, but in the two weeks hence they have done little other than rise. This shift happened as people who had planned on one outcome and had bet on the likelihood of certain policies suddenly found their punts out of the money. They were surprised. Markets hate surprises.
We at Fool Funds, on the other hand, remembered our Joshua Principle. (“A strange game. The only winning move is not to play.”) Accordingly, we didn’t make a bet on one outcome or the other. It’s not what we do.
So, what’s it going to be like under a President Trump? First and foremost, the degree to which people, including people who really ought to know better, give credit or blame to the president for rises or falls in both economic conditions and at the first derivative stock market returns is seriously inappropriate. Here is a truism, and it’s called a truism because it is true. Circumstances make the president, and not the other way around. Elections aren’t reset buttons.
That said, here are some things that are likely: The age of increased globalization and free trade is over for now. In their place we can expect aggressive stimulus, potentially higher growth and increased inflation, and, potentially, rising bond yields. (The combination of the latter two will have a deep impact on stock prices). I suspect that we have hit the absolute top for bond prices.
The big issue, not just for economic policy but for all policies, is whether the Trump administration will be capable or incompetent. A shift of ideology such as the one we’re facing will require some real talent in the top economic government roles. We have, at this point, very little to go on, and just as we were wrong to read so much into the market’s movements before the election, I’m not so sure there’s much to be read from their movements post-election, either.
Except maybe this: The election result was a surprise, a shock. Maybe, just maybe, the rise following the result was a function of people’s collective recognition that the U.S. is a nation of laws and systems, not of expressions of power and cults of personality. Those systems and laws are powerful – beyond the capacity of one man, or even one administration – to alter. We are a nation of laws. Maybe once the craziest election season came to a close, the market was able to refocus on this very important fact.
As always, my team and I are humbled by your faith in us.