A world with Donald Trump as President of the United States will be considerably different from a world before it. Investing ideas are shifting away from the pre-Trump era of low interest rates, low inflation levels and dropping yields. The market has already started to focus on higher inflation and increased yields. It is inexorably moving towards an area where the Federal Reserve unwinds all what it has held back all these years.
Bullishness is the dominant flavor exhibited by American Association of Individual Investors. According to a survey, there are ample expectations that the market will be higher within six months. It is expected to reach 46.7 percent, the peak from February 2015. When it came to pessimism, it dropped to its lowest at 26.6 percent.
The market rally post Trump's win have been uneven. Financials have dominated the market and more than half the sectors which dominate the Standard & Poor 500 have lagged behind the 3.2 percent gain. According to Nick Colas of Convergex, the future will result in more changes as the investors prepare to adjust to a new environment. There will also be a re-examination of traditional parameters. These parameters suggest that the S&P is overbought as it is trading at about 17 times earnings. He said that market expectations have markedly shifted- and it has done so extremely quickly. He warned that investors must reconcile to a trading ecosystem where the companies owned by them also invests as well and not just buyback all earnings in dividends and buybacks. There is also the factor that the industrials and financials sectors will show a long forgotten cyclical resilience which is out of sync with the fundamentals in the near term.
Equities have seen large amounts of investor money pouring in. Stock based ETFs have sucked in about $41.5 billion during November. The ETF in Financial Select Sector, which tracks financials including banks, have enjoyed a gain of 37 percent in the investor cash over the identical period. According to FactSet, this brings the total assets of the fund to about $20.7 billion. Participants in the market bet that the aggressive fiscal policies, as outlined by Trump, and backed by Republican Congress, will give the impetus to an economy which has tried to grow in excess of two percent per year. Experts however warn that although it will be good for a short period of time, the ending may turn out to bad.