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Look At Trump-Led Rally

Market participants have bought the dream, but are hesitant now that the dream is about to become a reality. With all the good feeling surrounding a new era of tax cuts and deregulation, equities have been bid up since the surprise result of the November 8 election. We now see cabinet hearings beginning for the new administration, and real debate has a way of tamping dreamlike exuberance.

By rhetoric, we expect a radically different government build-out under President-elect Trump than we’ve had for the past 8 years under Obama. However, even though things like corporate tax reform and further steps toward repatriating American businesses appear to be the low-hanging fruit that will help grow the economy in the near-term, there are plenty of perceived rifts between Trump and his party’s congressional membership that may make the transition more dicey.

Not the least of which is the “repeal and replace” issues regarding ACA, President Obama’s healthcare reform. It appears both Trump and Republicans in Congress are proceeding with caution now that the Senate has voted to make Obamacare null and void. What happens next? Will there be a way to keep coverage for those with pre-existing conditions, for instance, without ushering in a new comprehensive policy that has yet to emerge? And if so, should we expect Trump will stand by quietly and let it happen?

This is really not the place to get into that sort of policy decision; I only use it to point out that now is when the real work begins for the new Congress and new administration. (Obamacare is only one of many potential rifts between Trump and the GOP, too. Plenty of congressional Republicans take a much less glowing view of Russian President Putin than Trump does.)

It is for this reason several analysts are explaining our near-term market plateau. In fact, several — including esteemed bond investor Bill Gross — have issued warnings recently about the potential downside of the Trump rally.

What seems beneficial to keep in mind is that we are currently entering into a brand new macro-environment, including in the stock market. Where we had been seeing years of frustratingly sluggish growth, at least it was consistent and positive. With so many unknowns inside and outside the coming Trump administration, it makes sense to expect much more volatility than we’ve been accustomed to seeing.

This may be great news for day traders, who look for a higher VIX to squeeze the juice from near-term value in stocks. But for long-term investors, we may be in for a roller coaster ride that might make us queasy from time to time. Make sure to pack some Dramamine, and always fasten your seatbelt.

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