For better or worse, most of us felt the world change on the early morning of November 9th. Against all odds, Trump pulled off the biggest political upset in our life time.The world stock markets immediately dropped; in Europe the US Dow Jones Industrial Index lost over 900 points in two hours. This was a prime example of how the markets can behave and react to new information; not on anticipated information but on unanticipated and truly new information.
At 2:45am, I was wide awake planning to take advantage of this Trump sell off - which looked almost exactly like the initial sell off after the Brexit vote in the UK this past June. Doom and Gloom! I finally went to sleep about 4:30am anxious about the markets. When I woke not even a couple of hours later at 6:00am, the market hand rebounded 600 points, but still down 300. By the time the US markets opened, all of the losses were erased and then BOOM! The US stock markets soared! Market participants were not going to let a “Brexit Bounce” get the better of them this time!
Let’s take a little closer look
The big growth stocks: Facebook, Amazon, Netflix, and Google (now Alphabet) that were providing most of the returns the past five years in the S&P are more or less flat since the election. The winners? Bank stocks, brokerage stocks, small and mid-size companies – all of these should benefit greatly from the lower regulation climate that was a part of the Trump campaign message. Are we witnessing a fundamental shift in the markets from large growth stocks to small value stocks? Month to date Small Value Index is up over 10% while Large Growth Index is on up about 1.73%.
Time will tell if it was just campaign rhetoric or will President Elect Trump really “call off the regulation dogs” and let the economy blossom while at the same time risking another financial meltdown fueled by the easing of regulations on banks and brokers? For now, all we know is that going forward, things should be different. Remember: markets move on unanticipated news. No one knows what the unanticipated news will be or how the markets will move. Market behavior always has and always will be mysterious! That is why true diversification makes the most sense. Here is a look at the major indices as of November 30th. Of course none of the outcomes are predictable. As of this morning, oil is up over 7%.