What a month it has been...but before I continue, let’s set a few things straight. One, whether you consider yourself a Democrat, Republican or Independent, let’s all agree that Mr. Trump needs to get rid of his Twitter account. And second, let’s acknowledge that the media knows absolutely nothing. Given the outcome of this bizarre and extraordinary presidential election, perhaps we can agree that the legitimacy of mainstream media today has been radically put into question. Watching overpaid “experts” wrongly predict the outcome of an election by such a large margin now decide to use their “expertise” to debate why in fact they got it so wrong...? Yeah, it’s getting pretty old.
What isn’t old, and is still fresh in our minds, however, is the event of Donald Trump becoming President-Elect of the United States of America. Sure, saying those words might leave a disappointing taste in your mouth—if you didn't actually vote for him, of course—but what I find notably fascinating is the effect that the outcome of this election has had on the global financial markets. What many analysts thought would result in a major sell-off in the markets has actually turned into quite the opposite. In fact, on the day I'm writing this, the Dow Jones index is up over 5% followed closely by the S&P 500 at just under 4%...just since the election weeks ago. That's more than all of last year's market returns...for the year!
The truth is that nobody believed a Trump election would take form. Even the markets began pricing in a Clinton administration early on. Economists and analysts theorized that a Clinton administration would essentially be bullish (or optimistic) in the short run vs a much more bearish (pessimistic) outlook if Trump won the presidency. Though due to Trump's inability to define his intentions as President throughout the campaign trail, uncertainty ultimately flooded the idea of a Trump presidency.
From an economic standpoint, some economists translated the implications of a Hillary Clinton presidency as just another 4-year extension of the current Obama administration given her similar policy proposals. On the other hand, the implications of Donald Trump winning the White House were virtually riddled with uncertainty given his ambiguous policy proposals or lack-thereof throughout the presidential campaign.
What's being seen now is what no one saw coming: a radical change in investor sentiment due to the outcome of such a wild election. But why is sentiment so important in this case? Avi Gilbert, founder of ElliotWaveTrader.net, believes that sentiment is one of the best leading indicators of changes in market fluctuations. We just spoke to him last week on our podcast (see Avi Gilburt on Gold, S&P 500, and Market Timing) and one thing he discussed was Elliot Wave Theory (EWT). At its basic foundation, EWT assumes that it’s really public sentiment and mass psychology moving in waves that influence the behavior of the market over time. Former Chairman of the Federal Reserve, Alan Greenspan, even understood this type of analysis well, noting that the stock market is indeed driven by animal spirits of fear, euphoria, time preference, and herd behavior in corresponding “waves of optimism and pessimism.” (To read more about Elliot Wave theory, click here.)
My point in all this? Bullish sentiment has reached a multi-year high when looking at Consumer Confidence. Other metrics like the AAII Investor Sentiment index have achieved the highest levels of bullish sentiment in months. Bullish sentiment is seemingly being bolstered by Trump’s promises of deregulation, corporate tax cuts, and the proposed repatriation of hundreds of billions of dollars as a result of dozens of international companies moving back to the states. Could this new recent shift in sentiment extend the length of this 7-year-long bull market? Only time will tell, though, so far, a new wave of animal spirits has begun to charge.
By Joshua Nunn
