Like him or not, believe in him or not this is Trump Euphoria and for now, emotions are running high and if this draws more retail investing, it could go even higher because retail investors (according to the mutual fund and ETF net inflow/outflow data) have not been participating, yet.
At the moment it is debt and deficits "be damned", we'll worry about how to pay for all of this (tax reduction, infrastructure spending) down the road.
Problem is, equity markets have built in all the good things (and perhaps more) that they can imagine: Earnings growth for 2017 is expected to be about 11.5% and still the prices relative to earnings on a forward looking basis are at post recession highs (17 times) and well above their 10 year averages (14.4 times). Other valuation metrics that we monitor suggest a similar situation. So stocks are expensive (and they may get more expensive).
So what do you do?
Get more tactical: if you hold equity assets, you may want to gradually reduce your exposure into this euphoria in stock markets and look for less correlated assets that represent value.
When the euphoria dies down and equity market participants start to look for the rationale (value) for their ownership, it could be a fairly rude awakening (and sleepless nights may ensue).
Nothing goes up forever.
That's what we do at High Rock, we look for value and don't feel the absolute need to buy into over-priced equity markets (which does not mean that we don't own stocks by the way). And as I showed in yesterday's blog, it is not necessary to be heavily participating in the overly emotional stock market in order to get solid risk-adjusted and / or total returns over longer time periods.
When we do wealth forecasts for our clients, they can span the time frame of 30-50 years, so one year returns are a very small drop in the relative long-term bucket. Restful nights come from seeing your goals get closer and closer to reality as time moves forward. Do you have a plan?
If you would like to receive this blog directly to your inbox...
Scott Tomenson,CIM Managing Partner, Chief Investment Strategist