So, here’s the conundrum we find ourselves in today as investors. On the one hand, the U.S. economy is still on track and expanding according to the leading indicators I’m looking at. It suggests the current 8-year bull market has no fundamental reason now to reverse itself and become a bear.
On the other hand, there is Trump. Why do I say that, you might wonder? The markets have taken a roller coaster ride up since the election in what quickly became known as the “Trump Bump?” The Bump seems only to have added to the bull with the promises of tax rate reductions for business and less regulation dangling in the air.
In my mind, however, the Trump Bump is only the latest example of how the markets often act contrary to reason and logic in the short run, even as they tend to follow the larger economy in the longer term.
The Trump I’m worried about is the ever capricious, totally unpredictable, real live individual in the White House who, day by day, exhibits his incompetency while occupying the most powerful office in the world. The Comey firing is only latest in a continuing series of troubling events. Let me quote John Cassidy of The New Yorker magazine on that:
At a time like this, it is important to express things plainly. On Tuesday evening (May 9), Donald Trump acted like a despot. Without warning or provocation, he summarily fired the independent-minded director of the F.B.I., James Comey. Comey had been overseeing an investigation into whether there was any collusion between Trump’s Presidential campaign and the government of Russia. With Comey out of the way, Trump can now pick his own man (or woman) to run the Bureau, and this person will have the authority to close down that investigation.
That is what has happened. It amounts to a premeditated and terrifying attack on the American system of government. Quite possibly, it will usher in a constitutional crisis. Even if it doesn’t, it represents the most unnerving turn yet in what is a uniquely unnerving Presidency. (The New Yorker, May 9, 2017)
It seems very likely to me that this President’s reckless actions will eventually cause a national or global political crisis that will spill over to negatively affect the economy and trigger the next downturn in the markets. Yet, in the immediate wake of the election I wrote that the global economy transcends almost any national political event. Of course, I was concerned then the markets would do a nosedive and wanted to caution my clients to stay calm. Instead, the markets catapulted upward.
And there’s the lesson. I’ve said it repeatedly. We can’t predict future events, or how the markets will react to them. How many of us predicted Trump would be a serious Presidential candidate? How many of us predicted he would become President? How many SRI investors, in the wake of the election, thought a Trump presidency would cause the markets to leap ahead? What we know now about the markets and the economy is essentially the same as what we knew before the election: the markets have been up for about 8 years, the leading U.S. economic indicators are still mostly positive, and we will have a market downturn in the foreseeable future, although we don’t know when.
There will almost certainly be market turbulence ahead. Smart investors, and in my humble opinion SRI investors are all smart investors, will stick to their long-term investment plan, and get ready to rebalance their portfolios if the market makes a major move. If you are not in the stock market now, make sure before you jump in that you have an appetite for some risk and are ready to invest for the long term.
Where we are now is in the thick of change and uncertainty, always a time for investors to stay calm.