Since the presidential election, the S&P 500 is up 8.4%, Small Caps are up almost 20%, and the Dow is closing in on 20,000. This “Trump Rally” has its detractors. This rally, they say is based on “Hope and Faith.” After all, nothing has changed yet. It’s wishful thinking. Others disagree. According to a capitalized profits model, the market was undervalued by roughly 30% on election day, and has been for the previous eight years as well. The reason for this undervalued was government policy which made it difficult for free markets to operate. Higher taxes, higher spending and more regulation stuns growth. It’s why we have had a sluggish economy. With Trump, these policies may be reversed. Additionally, profits are rebounding. Oil prices are stabilizing, which helped economy-wide corporate profits rise 6.6% in the third quarter. The election may not herald a new era of free market perfection, but investors can be confident that, overall, public policy isn’t going to get worse and may get much better. Trump is moving out the Ivy League elite and moving in an all-star cast of adjunct professors. Markets know that this infusion of real world experience will push policy in a much more market friendly direction.
(Source: Brian S. Wesbury, Robert Stein, Economists 12/12/2016)
S&P 500: The Standard & Poor’s (S&P) 500 Index tracks the performance of 500 widely held, large-capitalization US stocks. DJIA: A price-weighted average of 30 actively traded blue-chip stocks, primarily industrials including stocks that trade on the New York Stock Exchange. All indices are unmanaged and investors cannot actually invest directly into an index. Unlike investments, indices do not incur management fees, charges, or expenses. Past performance does not guarantee future results