Trump Wins and Investors Follow the Herd

Doug Fabian

Doug Fabian is known for his expert knowledge of ETFs, bear funds and enhanced index funds to profit in any market climate.

Here comes President Donald J. Trump.

Now that’s something you don’t see every day.

By now, the world knows all about the remarkable election results. To say that most so-called “experts” were wrong about the outcome is to be as generous as one can possibly be.

This is especially true of so many so-called market experts, most of whom had predicted a Hillary Clinton victory and probably invested accordingly.

We know that because of how the markets reacted on election night, especially as it was growing increasingly clear that Donald Trump could actually become the 45th U.S. president. I was watching the futures markets that night, and at one point the Dow futures were down more than 800 points. That shows traders were betting on markets falling hard on the Trump win.

Well, once again, the experts were wrong. On Wednesday, stocks opened somewhat erratically. But by mid-morning, there was a decided bid higher in the markets. That bid was driven by money flows into what I call “Trump-win” sectors. Those sectors are the ones likely to do well because of President Trump’s policies.

This rotation was even more pronounced given the fact that Republicans hold control of both the House and the Senate. The all-Republican executive and legislative branches mean that President Trump will be able to pass legislation he and the Republicans in Congress want, and that means he can enact proposals such as more infrastructure spending, corporate and personal tax cuts, removal of onerous regulations on business, increased defense spending, etc.

Wall Street liked that possibility, and on Thursday the big rally continued. The chart here of the Dow over the past five days tells you all you need to know about the initial feelings toward the election results.

Exclusive  Apple Puts Much Needed Shine on Troubled Tech Sector

ind

This outcome was the exact opposite of what many thought would happen.

Last week, I read multiple research reports predicting a Clinton victory, and a rebound in the markets once certainty returned to Wall Street. These same reports warned that if Trump somehow pulled off a miracle upset win, then stocks would plunge, gold would surge and bond prices would spike.

The reality here could not have been more wrong.

Stocks surged after Trump’s win, gold prices fell and bond yields spiked. So much for the conventional wisdom.

One reason the markets have done so well over the past several days is due to the phenomenon of behavioral economics. This is when a group of actors (such as investors) behave along with one another and thereby fuel the action and/or result in a particular direction.

In this case, investors ran to sectors such as financials, biotech, infrastructure, defense and other sectors. While I understand this happens all the time on Wall Street, I caution you not to fall into this trap. What you don’t want to do is chase sectors, so I recommend not trying to ride the gains of the past two days in biotech, financials and other sectors on this immediate post-Trump-win boost.

Sure, if you were lucky enough to have owned these sectors before their big, respective moves, then congratulations. But if you try to pile in now, well, that’s likely to result in something I call “bad trade location,” and I recommend you avoid putting yourself in that position.

Of course, the Trump administration and the Republican Congress will mean new opportunities for investors. But if you succumb to the temptation to jump on a short-term buying wave, you just might see that wave fold in on you quicker than you think.

Exclusive  A Fund that Focuses on U.S. Dollar-Denominated Assets

If you’d like to get in on the uptrends that are just starting to break out and avoid those that are destined to bring you to a bad trade location, then I invite you to subscribe to my Successful ETF Investing advisory service, today.

Wisdom for Trump

“I count him braver who overcomes his desires than him who conquers his enemies; for the hardest victory is over self.”

— Aristotle

It might be presumptuous of me to offer advice to the president-elect, but the wisdom here from Aristotle applies to all humans. In a job that will no doubt test the limits of human will, it is wise to have control over your own desires and impulses. If you can achieve this, the country is likely to be the real victor.

Wisdom about money, investing and life can be found anywhere. If you have a good quote you’d like me to share with your fellow readers, send it to me, along with any comments, questions and suggestions you have about my audio podcast, newsletters, seminars or anything else. Click here to ask Doug.

In case you missed it, I encourage you to read my e-letter column from last week about what I felt the best way to invest after the election would be.

previous article

Trump has won the election and is our next president. Stock Investor's team of expert analysts tell you where to invest next.

PREMIUM SERVICES FOR INVESTORS

Dr. Mark Skousen

Named one of the "Top 20 Living Economists," Dr. Skousen is a professional economist, investment expert, university professor, and author of more than 25 books.

Product Details

LEARN MORE HERE

Bryan Perry

A former Wall Street financial advisor with three decades' experience, Bryan Perry focuses his efforts on high-yield income investing and quick-hitting options plays.

Product Details

LEARN MORE HERE

Jim Woods

Jim Woods has over 20 years of experience in the markets from working as a stockbroker,
financial journalist, and money manager. As well as a book author and regular contributor to
numerous investment websites, Jim is the editor of:

Product Details

LEARN MORE HERE

Bob Carlson

Bob Carlson provides independent, objective research covering all the financial issues of retirement and retirement planning. In addition, Bob serves as Chairman of the Board of Trustees of the Fairfax County (VA) Employees’ Retirement System, which has over $2.8 billion in assets.

Product Details

LEARN MORE HERE

Mike Turner

Mike Turner’s financial, mathematical, computer science and engineering background serves as the foundation for his disciplined, rules-based approach to trading. Mike’s three services include:

Product Details

LEARN MORE HERE

Hilary Kramer

Hilary Kramer is an investment analyst and portfolio manager with 30 years of experience on Wall Street. Since 2010, Hilary's financial publications have provided stock analysis and investment advice to her subscribers:

Product Details

LEARN MORE HERE

DividendInvestor.com

Used by financial advisors and individual investors all over the world, DividendInvestor.com is the premier provider and one-stop shop for dividend information and research.

Product Details

Popular tools include our proprietary Dividend Calendar, Dividend Calculator, Dividend Score Card, and many more.

LEARN MORE HERE