In the Wake of the Election, Looking to the Long TermSheaff Briefs Editor
“Myths abound, but when it comes to your portfolio, it doesn’t matter much which party winds up in the White House,” at least according to Anne Kates Smith, senior editor of the Kiplinger Report. Conventional wisdom might suggest that Republicans are more “business-friendly” than Democrats, yet when we look back to 1900, it appears Democrats have actually been slightly better for stocks.
Dave Gilreath, Sheaff Brock’s Chief Investment Officer, isn’t getting rattled by the post-election turmoil, either. Gilreath’s outlook on the U.S. economy and the stock market long term? Bullish, he assured our Sheaff Briefs editor. When he began his career in 1981, Gilreath recalls, the Dow had never been above 1000 points. Every morning since then, we’ve woken up to some sort of “bad news”. Yet here we are, some three and half decades later, and the DJII is well above 18,000, he observes with no small degree of wonderment.
For the short term, says Gilreath, chief Vanguard economist Roger Aliago-Diaz’ advice makes sense: “Stay focused, keep perspective, and, above all, don’t make drastic changes to your portfolio.” Cautious of owning long term bonds, Gilreath does advise getting out of those now. Preferred stocks (largely issued by financial companies) are “bonds in stocks’ clothing,” and continue to offer value because yield spreads are still abnormally high, he says. As far as equities are concerned, with certain stocks delivering 2-3% in dividends, you can afford to “sit in” while “getting paid.” Looking to the long term, investors must pay heed to the “pendulum of valuation,” which has invariably swung back to the side of now “unloved” (overregulated and out of favor) market segments. What are those out of favor sectors?
- industrials (heavy manufacture)
- traditional energy (oil, coal, natural gas)
- traditional transportation (railroads, trucking)
“Stocks typically sell off after the party that has been out of power wins the presidency,” says Dan Clifton of Stregas. “Expect markets to be skittish during this time frame.”
But rather than seeing this expected period of uncertainty as cause for panic, Gilreath emphasizes that investors should view it as a buying opportunity. “Buy value. In the natural order of market fluctuations, undervalued things tend to become—at least—fairly valued once again.”