Fourth Quarter Market Commentary - Election Aftermath

by Darren Munn, CFA

by Darren Munn, CFA

Aren’t you glad that’s over!  This election season was brutal.  For several months, there was no escaping it.  It dominated the headlines, both in the mainstream media and on social media.  The same was largely true in the financial markets, which were closely watching the election.  The ultimate outcome, a Trump victory and Republican sweep of congress, was considered a huge surprise and sent the markets into a tailspin…for all of about 10 hours.  In the evening of the election, stock futures dropped 5% before being shut down for the night as it became apparent Trump would win.  But by the time the markets opened the next day, stock futures had completely recovered and stocks ended the day 1% higher!1 

The small gains we anticipated when a clear winner emerged turned into fairly large gains, as the S&P 500 surged about 6% after Election Day through the end of the year.1 Why? In a nutshell, we believe the market is expecting a stronger economy with Trump as president.  This will largely be driven by lower corporate tax rates, which directly translate into higher profits, which means higher stock prices.  Of course, this is all before Trump is even in office or any legislation has been passed – so it appears to us the market is pretty confident about the likelihood of these developments. 

We agree with the markets that a Trump presidency is more favorable for the economy…BUT.  That is a big “but”.  There are certain factors in play over which Trump will have no control, so how much impact he will have remains up for debate.  The Federal Reserve raised interest rates again in December and indicated they expect several more increases in 2017.  Sound familiar?  We believe this and the strong dollar will be headwinds, in addition to some other concerns we have been watching.  The reality is, we may be headed for a recession in the next year or two regardless of what Trump does.  If so, we believe it will be a shallower recession than it otherwise would have been. 

The fourth quarter was again positive for stocks and easily the worst for bonds – which gave up much of their gains for the year as rising interest rates drove down bond prices.  Most of the positive move for stocks and negative move for bonds came after the election.  (Morningstar)


·         Employment continued to be steady with the unemployment rate at 4.7% in December.  (U.S. DOL)

·         Low oil & gas prices continue to save money for consumers, but the savings have been shrinking.

·         We believe energy markets have stabilized and are near equilibrium.  We expect oil to stay in the $40-$60 range in 2017.

·         Housing has continued moderate--but choppy--growth.  Low interest rates have helped keep prices affordable.  (Barron’s)

·         Economic growth picked up in the third quarter to 3.5%2 - but we do not expect this rate to continue.

Challenges & Risks

·         Economic growth will likely trend in the 2% range in our opinion.

·         Oil price declines are still working through the system and we are seeing the expected defaults from many energy companies. 

·         Interest rates – the Federal Reserve raised interest rates in December and expects 3-4 increases next year.  We believe this is more than the economy can handle and expect only 1-2 increases next year.

·         Government regulation is a potential huge drag.  Health care costs are continuing to rise significantly & government interference in several areas (finance, education, energy) continue to limit economic growth.  Will this improve in 2017? 

·         China, Europe, North Korea – we expect these three to capture significant headlines in the coming year.

Despite a rocky start, we believe 2016 turned out to be a pretty decent year in the markets.  Unfortunately, investors who panicked during the rocky period of January and February seemingly missed out on some very substantial returns.  We have been working to “lock in” some of our gains and move capital to investments we believe offer greater upside potential over the next few years. 

We are excited about what 2017 has in store and are honored to serve you!




1)      Bloomberg

2)      Barron’s


Past performance may not be indicative of future results. Therefore, no current or prospective client should assume that the future performance of any specific investment, investment strategy (including the investments and/or investment strategies recommended by the adviser), will be profitable or equal to past performance levels.  This material is intended to be educational in nature, and not as a recommendation of any particular strategy, approach, product or concept for any particular advisor or client.  These materials are not intended as any form of substitute for individualized investment advice.  The discussion is general in nature, and therefore not intended to recommend or endorse any asset class, security, or technical aspect of any security for the purpose of allowing a reader to use the approach on their own.  Before participating in any investment program or making any investment, clients as well as all other readers are encouraged to consult with their own professional advisers, including investment advisers and tax advisors.  Camelot Portfolios LLC can assist in determining a suitable investment approach for a given individual, which may or may not closely resemble the strategies outlined herein. A337