One Year Later

by / Friday, 10 November 2017

One year ago, millions of Americans went to the polls and voted against their least favorite candidate. And although more people voted against Trump, the Electoral College once again kept our country from being ruled by California and New York.

Just prior to the 2016 election, we wrote in our November Investment Commentary, “Calm Before the Cloudy Skies”:

In a year when almost any Republican candidate could have beaten Hillary Clinton to become president of the United States, somehow the Republican Party nominated the one candidate who, if he could win, simply won’t let himself win.

It’s as if running for president has been nothing more than free publicity for whatever TV show Donald already has planned . . . with no intention of winning the election. It would almost be a cruel joke on him if he accidently won the election. “What? Now I have to be president for four years? I had this great TV show all lined up and now I have to run a country instead? You gotta be kidding me! Do they really think I am going to build a wall and make Mexico pay for it? This country must really hate Hillary because I did almost everything I could to lose that election!”

So we have just completed Year 1 of the cruel joke being played on Donald Trump.

Of course the joke played on the United States was that most citizens were forced to vote for the candidate they determined was least undesirable. This election led to the most divisive political climate we have ever seen. People find it difficult to maintain friendships across party lines.

At Boyer & Corporon Wealth Management, we make a concerted effort to view politics through a neutral lens because we feel it helps us make better investment decisions. So pretty much everyone on both sides hates us, because for many in today’s society it’s “If you’re not with me, you’re against me.”

But keeping our eye on the economic world regardless of the presidential election outcome kept us invested, even though there were many who thought a Donald Trump presidency would bring immediate disaster of all kinds.

What happened after the election?

It’s been more of the same since before the election: slow and steady growth (real GDP increased 2.3% for the year) and a low unemployment rate that continues to drop. And if you haven’t noticed, the stock market has been on a tear. The S&P 500 is up ~24% since November 8, 2016. While it has often been dubbed the “Trump Rally,” the reality is that most of the gains we’ve seen in the last year have been on the back of increased corporate earnings and profitability. Don’t let your politics hurt your investing.

The assumption that a heavy fiscal stimulus from a Trump Administration would lead to increased inflation sent interest rates higher on Election Day. However, those expectations have yet to materialize into actual government spending, and long-term interest rates have come back down. Our belief is that fundamental factors (namely, massive debt loads) will continue to dampen economic growth, keeping inflation in check and long-term interest rates low.

Short-term interest rates, on the other hand, have continued to climb due to Federal Reserve actions. The Fed put an end to the zero-interest rate era and we expect it will raise the Fed Funds rate again at the December meeting, a foregone conclusion since the Fed has a habit of telegraphing everything it does. We expect no change to that pattern after Janet Yellen’s term ends in February and Trump’s appointee, Jerome Powell, takes over as Fed chairperson.

Recently, the number of Americans filing for jobless claims fell to the lowest number since March 1973. That’s right, more than 44 years ago!! Back when the word “millennial” had something to do with a thousand years.

Meanwhile, unemployment checked in at 4.1%, the lowest since 2001. With so many people employed, the real mystery is why wages are not rising more quickly. Some suggest that those finding new jobs are not getting good wages because they lack the skills to compete for the higher-paying jobs that are going unfilled. We also hear anecdotal evidence of employers raising wages in hopes of attracting more qualified candidates only to find themselves attracting a larger number of unqualified candidates.

There are many reasons why this might be occurring, but none that economists have agreed upon. Until we start to see stronger wage growth, we will not see a meaningful pickup in the speed at which the Fed increases interest rates.