Darren's Blog

A resource for the thoughts and writings of Darren Brennan

December 2016 Market Commentary from Darren Brennan

 

Economic Outlook

 

The U.S. economy continues to show signs of stress, but there is optimism in the air with the new guard coming to Washington D.C. It will be nice to see pro-growth policies come back to the White House after years of wasted opportunities from the Obama administration. When Obama was first elected, I agreed that there needed to be some type of government stimulus to fuel the economy over a multi-year period to help the economy continue to recover from the Great Recession. But even that stimulus plan was botched through what Obama jokingly claimed were “shovel-ready jobs that weren’t so shovel-ready.” In addition, the President and his fellow Dems went for a power grab in the form of Obamacare, when they should have focused their efforts on why Obama was elected in the first place: to put Americans back to work. Instead, after 8 years of Obama, we now have over 94 million Americans not in the workforce, stagnant wages, Obamacare collapsing on itself, and an economy that could slip back into recession at a moment’s notice. This leaves us in the same position we were in 8 years ago, where the new President should enact a proper stimulus plan to rebuild our nation’s old infrastructure and provide badly needed jobs over the next 2 to 3 years. While this will most likely add to the deficit, a comprehensive stimulus plan could go a long way in rebuilding America (which most agree needs to be done), putting people back to work, stimulating the economy, and expanding the tax base with newly hired Americans. This all seems like common sense, but we know that there has been a shortage of that in Washington D.C. for quite some time.

 

In addition, Trump is now forming a major tax cut package for the middle class, while most high earners will notice little change to their tax bill since they will receive a tax cut too, but will also lose deductions at the same time. Tax cuts should have an economic stimulus effect too just as Reagan’s tax cuts provided an economic boost throughout the 1980’s. So when you combine an effective stimulus package with tax cuts and deregulation on corporations and small businesses, you can get renewed optimism, which is the long-term fuel for economic growth. Basically, if Trump does the opposite of what Obama did in his first four years, I think Trump will have a good shot of delivering on his campaign pledge to get our economy growing at 3% GDP or better. If Trump can deliver that type of growth, he won’t have a hard time being re-elected for a second term, but it is a tall hill to climb to reverse the damage that has been done. However, I am glad that we live in America where a turnaround like this is even considered a possibility since I have serious doubts that the EU could even think that such a rebound can be accomplished, let alone being able to actually pull it off. In fact, I mentioned to clients in my email about 15 years ago that I gave the EU about 20 years before it would begin to collapse. It appears I was too optimistic on the EU lasting, but it seems as if Brexit, Trump, and now an Italian referendum are pointing to the EU collapse to accelerate in the coming years.

 

 

 

Stock/Bond Report

 

The “Trump trade” appears to show no signs of losing steam and as we enter December so the question is: Are we now on the verge of a Santa Claus rally to add to the recent gains in equities? I think the answer is “yes” since we are seeing what a little optimism can do for investors as stocks are still hovering around record highs ever since Trump was elected. However, that optimism has caused many investors to reduce their bond holdings in favor of more risky stocks since the outlook for an improved economy certainly went up with Trump’s shocking victory. While I remain optimistic on equities, I do think that it is finally time to worry about bonds if you are heavily invested in government bonds. However, I have been recommending a defensive position in the bond market to my clients for a couple of years now so I have been preparing client portfolios for this type of environment regarding interest rate sensitive securities. I am not recommending that clients abandon the bond market in favor of equities; in fact, I am recommending that most of my clients make no changes to their portfolios until we finally see the details of what a Trump administration will roll out on a number of issues that could affect stocks and bonds in the long-term. 

 

 

Overall, I think now is an appropriate time to be bullish on equities and exercise caution on bonds through a diversified and defensive allocation. In addition to that, I think it is prudent to not make major changes to portfolios in the 3 to 6 months after a Presidential election. 

 

 

 

 

 

Just a Thought

 

 

 

“The one important thing I have learned over the years is the difference between taking one’s work seriously and one’s self seriously. The first is imperative, the second is disastrous.”

 

-Margot Fonteyn, ballerina

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The views expressed are not necessarily the opinion of FSC Securities Corporation, and should not be construed directly or indirectly, as an offer to buy or sell any securities mentioned herein. Investing is subject to risks including loss of principal invested. Past performance is not indicative of future results.   This material contains forward looking statements and projections.  There are no guarantees that these results will be achieved. No investment professional or strategy can accurately predict market performance. The bond market involves risk. In general, when interest rates go up, bond values go down and vice versa, and this effect is usually more pronounced for longer-term securities. No investment strategy can guarantee a profit or protect against loss in periods of declining values. **Guarantees are subject to the claims paying ability of the insurance company.

 

 

 

The S&P 500 Index cannot be invested in directly, and is unmanaged.

 

 

 

Any fixed income security sold or redeemed prior to maturity may be subject to a substantial gain or loss. Depending upon the municipal bond offered, alternative minimum tax and state/local taxes could apply. Generally, municipal bonds generate tax-free income, and therefore pay lower interest rates than taxable bonds. Therefore, municipal bonds may not be suitable for all investors. Please see your tax professional prior to investing.

 

 

 

There is no guarantee that a diversified portfolio will outperform a non-diversified portfolio in any given market environment. The price of commodities, such as gold, is subject to substantial price fluctuations over short periods of time and may be affected by unpredictable international monetary and political policies. The market for commodities is widely unregulated and concentrated investing may lead to higher price volatility. Sales of CD's prior to maturity may result in loss of principal invested. Federal deposit insurance generally covers deposits of up to $250,000 in the aggregate for each depositor in each bank, thrift, or credit union. A customer should ensure that purchasing any insured CD will not bring his or her aggregate deposit over $250,000 FDIC insurance limit. Investors should be aware that there is no FDIC insurance coverage for any principal losses that may be incurred.

 

These links are provided for informational purposes only and FSC Securities Corporation does not endorse or accept any responsibility for the content of these websites. FSC Securities Corporation does not guarantee the accuracy or completeness of the information appearing on the linked pages and does not assume any liability for any inaccuracies, errors or omissions in any information provided on the pages.

 

 

 

There are no guarantees that dividend-paying stocks will continue to pay dividends. Companies may reduce or eliminate the payment of dividends at any given time.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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September 2016 Market Commentary from Darren Brenn...

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