Research & Advice

|

The Trump Dump

Investors were shocked this week when the U.S. stock markets fell almost 2% in one day. Wall Street blamed it on the growing scandals engulfing the White House. However, there was little follow through despite predictions that this was the beginning of the long-awaited pullback.

To be honest, much of the controversy coming out of Washington—demand for Trump’s impeachment, obstruction of justice, witness-tampering, etc.—is simply partisan politics deliberately fueled by a biased media. All of the above, which had been building for days, finally reached the tipping point for investors. As weak-kneed day traders started to sell, the program computers began to join in and the rest was history. Wednesday turned out to be the worst day of the year for stocks.

I actually think the carnage was a good thing. It furnished all of us a reminder that markets do go down as well as up. Ever since the November election, stocks have climbed. There has been little in the way of volatility and at most a mild 3% pullback in some of the averages over a few weeks. That is not normally how the stock market works.

However, we are human and the longer something continues, the more we expect it to continue into the future. When it changes, not only are we surprised but our first reaction is to cut and run. I am sure some of you did just that this week.

Over the last two days, stocks have regained about half the losses sustained on Wednesday. From a technical point of view we have at least a 50-50 chance that traders will push the averages back down to the lows that occurred on Wednesday. It’s called a retest. If we hold there (around 2,350 on the S&P 500 Index) traders will simply chalk up the event as a warning that somewhere ahead of us looms a larger sell-off.

You might ask why the pundits’ predictions of a further sell-off didn’t come true. The answer lies in how we are all being manipulated by politics and the media. The “experts” told us that all this Russian-inspired controversy, followed by the firing of the FBI director, and the creation of a special jury to investigate wrong-doing within the Trump White House would further delay what the market needs and wants. Tax reform, health care, infrastructure spending and much more would now be pushed back even further and further. It may not even happen at all if Trump were to be impeached.

And just as investors began to believe all this tripe, the White House has sent in its forces to reassure investors that all is on track on the economic reform front. Suddenly, the Trump budget will be announced next Wednesday offering all kinds of goodies to investors. At the same time,. Steve Mnuchin starts talking about 3% GDP growth again. And “The Donald” takes off for a five-nation trip, his first, today, which was sure to distract the media from its Russian witch hunt.

The moral of this tale for you and I is to continue to ignore the noise. Think of yourself as a batter who must keep his/her eye on the ball. That ball is the growth rate of the economy, (good), earnings (great), the Fed (moderate). Ignore everything else. Hang in there.

Posted in A Few Dollars More, At the Market