The realities of politics and policy are colliding with the optimistic rhetoric of campaign promises, and that may cause the post-election rally in U.S. equities to stall.
Investor optimism about the “Trump bull market” is starting to wane as they grow increasingly sceptical about President Trump’s ability to deliver a meaningful fiscal stimulus in the form of targeted spending and tax cuts, which could drive growth, support earnings, and move equity prices higher.
At this point, investors may wish to right-size their portfolios, take gains, and maintain exposure to traditional core bond portfolios. International equity markets, where expectations are not as high as in the U.S., may offer an attractive option for equity investors.
The risks to the outlook for U.S. equities, given the uncertainty surrounding the policy direction of the new administration and the prospects of Federal Reserve policy tightening, are greater than they have been at any point in this cycle. The potential for disappointment is high.
Bonds are exposed to credit and interest rate risks (when interest rates rise, bond prices generally fall). Equities are subject to market risk and volatility; they may gain or lose value.
Foreign investments may be volatile and involve additional expenses and special risks, including currency fluctuations, foreign taxes, regulatory and geopolitical risks.
This material is for informational purposes only and is not intended to be investment advice, a recommendation, or to predict or depict the performance of any investment.