Trump Bump. Trump Slump. The financial media loves simple catchphrases to describe what’s going on in the market. S&P futures are down this morning as it looks like we’ll see a selloff due to Congress’ inability to repeal and replace Obamacare and continuing fears that tax reform will be more difficult to pass than expected.
We think it’ll be easier for Republicans to agree on tax reform than health care reform and tax cuts will pass in due time. In the meantime, market volatility can be good for the opportunistic investor, as the Wall Street Journal pointed out this weekend. The so-called “Trump Bump” pushed prices to a point of “irrational exuberance,” with outsize expectations and overinflated valuations. When stock prices go up too high and too fast, speculative investors get nervous and start a selloff. Individual investors who bail out of stocks as soon as there’s a selloff will continue to get burned.
How to Trump the Slump? Stay the Course
The Wall Street Journal also wrote this weekend about how a market correction might not be so bad. Market corrections (a 10% drop from the highs) are a natural course of a healthy market cycle. Stocks go up and then go down and then go back up again. All Things Must Pass. Corrections happen nearly every year, and every year we find tremendous opportunity to add to our positions at a discounted price.
By investing in companies with a history of continually raising their dividends, we’re protected from market volatility. We collect income regardless of market forces beyond our control — when stock prices fall, yields go up!
Eventually we’ll get over the Trump Hump. Deregulation and tax reform will result in increased capital expenditures and more access to loans for businesses of all sizes. We think we are on the cusp of significant growth and stock market valuations will reflect that for the foreseeable future. These changes will be permanent and support our long-term bullish outlook.