Portfolio Review and upcoming Trump policies
Does my portfolio need a complete remake?
Here are the important issues:
- Has the best asset allocation shifted? More stocks, less bonds?
- Is the overall market more dangerous? Time for more cash?
- What are the likely economic consequences, in both the short and long terms? The WSJ has a nice general summary, loaded with charts, about the economy Mr. Trump will inherit.
- Which stock sectors are likely to benefit, and by how much?
- Are there specific stock favorites?
The postelection winning stocks represented a broad range of industries: banks, asset managers, drugs, biotech, private prisons, major managed-care companies, steel makers, independent refiners, and pipeline operators. Losers included hospital operators, Medicaid managed-care specialists, technology, and interest-rate sensitive businesses, including electric utilities, telecoms, and real estate investment trusts.
The selloff in rate-sensitive stocks—utilities were off 4% on the week—reflected a surge in interest rates. The yield on the 10-year Treasury note rose 0.4 of a percentage point, to 2.12%, on expectations of more inflationary fiscal policies and a healthier economy.
Some moves could be overdone. Financials might not benefit as much from regulatory reform as Wall Street expects, while the selloff in rate-sensitive issues could be a buying opportunity, given dividend yields in the 3% to 5% range. The rally in drug stocks could continue, as the group sold off sharply before the election and shares aren’t expensive. Pfizer (ticker: PFE), Amgen (AMGN), and AbbVie (ABBV) trade for about 13 times projected 2016 earnings, and yield about 3%.
Companies that may participate in “rebuilding the aging infrastructure.” Here are eleven stocks (24/7 Wall St) that could benefit from the $2.75 trillion that The American Society of Civil Engineers sees as necessary. Some of the ideas might surprise you.
Barron’s has a summary of other stock ideas, for those interested in immediate pursuit of the Trump theme.
Dividend stocks? Many observers opined that this week’s decline in the bond substitutes was only the start. (I agree). The dividend investment gurus have a different take. While they are looking for buying opportunities, here are the early returns.
What’s Next?
As I write this we have already seen a change in the Trump transition leadership and acceptance of some elements of ObamaCare. Each policy needs fresh scrutiny, using the following elements:
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The possible difference between candidate Trump and President Trump
- Which proposals were serious
- The effect of actual responsibility
- The influence of the team
- The limitations of power (See this great take on what Truman said about Eisenhower)
- The potential for compromises
I will look at these questions on a policy-by-policy basis, discovering the changes in value in the related stocks. Many journalists and pundits are on this job, of course, but the instant conclusions are unreliable. Even the best journalists and financial analysts have little experience in analyzing the workings of the policymaking process.
