First let me apologize to the two readers who genuinely look forward to my columns. It’s been a very long time since my last post, and I am sorry.
I want to tell you what I got wrong.
I didn’t write explicitly about my expectations regarding US election outcome, but I was incorrect in my assumptions and that likely colored the comments I did make. I thought the Harris-Walz campaign would eke out a tight win, finally beginning to close the door on the Trump Republicans and kleptocratic plutocracy in the US. Clearly that did not happen. Good grief did I misread the national mood.
I was also wrong to think the markets would be basically calm following the election. It’s normal to see a flurry of trading in and out of various sectors in anticipation of a new administration’s economic goals and business priorities, but it usually relaxes and leaves relatively little changed.
But in this case the new Trump administration has such radical economic plans that investors are moving huge volumes of money into the industries and asset classes that look to benefit most from presidential actions— with help from an allied Congress and an indifferent Supreme Court. From Big Tech to cryptocurrencies to retail to AI to corporate mergers, investors are betting on big changes. So markets have been climbing since November 5: in only 24 trading days, the S&P 500 index is up 5%, and the Nasdaq has risen over 8% and both are clocking repeated record highs.
Sure, I could jump in with both feet to find some interesting plays for you— what to sell, what to buy, how to leverage this moment. But today I want to caution you.
Because I do not believe this will last. (I could be wrong on this as well, so take it with salt.) I do not believe we are going to see substantial increased profitability, giant long term gains for shareholders or any kind of American business renaissance. I do not believe what’s happening right now will continue because it is not based on reduced costs or new products or market-changing ideas or business expansion or the slaying of foreign competition. Some companies are indeed doing great, but what we’re seeing in the markets— which by definition are forward looking— is merely an expectation of what is to come from the Trump White House. Yes, there will be deregulation and miles of open road for some of the most powerful industries in our economy, and that will reap shareholder benefits. Yes, businesses with ties to the administration will probably realize outsize gains. (Elon Musk’s Tesla and SpaceX? Of course! Amazon thanks to Chief-Suck-Up, Jeff Bezos. Zuckerberg’s Meta has donated to the Inauguration Committee. Tim Cook’s Apple always gets a pass. New crypto-friendly regulators will push Bitcoin …). Investors are literally banking on those changes.
But what are not yet being factored into market prices are the counter impacts we should expect from other promised Trump administration policies:
- Deportation of ‘illegals’ by the millions, which will leave industries dependent on migrant populations without a workforce: think agriculture and meat processing, heartland manufacturers, all kinds of construction, the entire restaurant/hotel sector. Prices for those goods and services will skyrocket with fewer workers to provide them, and the job market could implode from the stress.
- Deregulation of big business will benefit shareholders at the cost of consumers and small businesses. As large companies consolidate power and resources, effective monopolies will raise prices, widening the wealth gap and forcing more average folks to hold a second or even a third job just to get by. Meanwhile American families will continue to be weighed down by the rising cost of housing simultaneous with a deeply dysfunctional health care system which perennially underperforms even as it overcharges.
- Tariffs on imports from around the globe, which will raise prices for consumers and stress US businesses struggling to fill the resulting demand gap. Making it worse, tariffs bring trade wars, with other nations slapping their own tariffs on American made products and commodities, further gumming up global supply chains and reducing affordability and access to goods.
- Tax reductions on businesses and the wealthy will mean not only shrinking federal government coffers and necessary cuts to social programs (hard on seniors and the lower and middle classes), but also more spending power to affluent consumers. That will drive spending in an era of already-higher prices and reduced availability, which could in turn start us down an all new inflationary path. Prices finally coming down after 2021-2023 would go right back up.
Taken together, these effects will be an albatross around the neck of American business and on our economy. These things will take time to play out, so it won’t happen overnight. But in a year or two, we could be right back where we were. Plenty of manual labor jobs but far fewer workers to fill them in our fields and restaurants, and both fewer options and higher prices on much of what we need to live— food, medical care, transportation, housing.
All of which is to say, enjoy the market bump while you have it. Plan ahead for a rainy day. If I’m right this time, it will be a downpour. Please note, I do not advocate selling and waiting for a safer time! (Never ever ever ..)
In poker, a smart player who’s up will continue to play but might take a little cash off the table. The stock market— really another form of gambling— is no different. When I see unexpected price jumps, especially those that are hard to explain or defend, I try to trim a few positions and pocket those gains. If you’ve been investing a while, you’re probably doing well too. So take a couple percentage points off your most-successful holdings and convert to cash. Then stash it in an interest-bearing savings account where you can access it for unexpected expenses (medical need, job loss, automotive breakdown, emergency travel …). A year from now I expect you’ll be glad for your prudence.