Not very long ago, ′experts′ were predicting that if Donald Trump were elected, there would be a financial meltdown. Many advised investors to sell off their stocks, or short the market. But, a funny thing happened after November 8. The Dow Jones exploded, with the Industrial Average topping 19,000 and scoring more than half of its annual gain for 2016 in just 7 weeks. Yesterday, the Dow Jones broke the 20,000 ceiling, with the DJIA finishing the day at just over 20,068. The value of Dow Jones stocks have increased some $2 Trillion dollars since President Donald J. Trump was elected. Is this a sign that he has made America Great Again?
You betcha! However, before we get too carried away, we do need to keep in mind several key points. First, the stock market has been highly over-priced after 8 years of the Federal Reserve Bank pumping Trillions of cheap dollars into it. So, at some time in the future, there may be a major correction or reckoning. On the flip-side, the stock market is a futures market. The value of stocks has little to do with actual corporate performance, but more so with human psychology. If people are optimistic, then the market goes up.
As the votes began coming in on November 8, early trading on the DJIA from overseas markets were worried. At one point that evening, the DJIA Futures were down some 800 points. Foreign investors had expected Hillary Clinton to win, since that is what the world′s media and experts had been preaching for months. But as the reality began to sink in later that night that Donald Trump was headed for victory, the DJIA began ticking upward again. The promise of lower tax rates and less regulation meant that businesses would actually earn more real money and have larger profits.
The ′Trump Bump′ went into full swing in the days following the election. There was no doubt about it! We watched as the Dow Jones began setting a series of new, record highs. For the previous 10 months of 2016, the DJIA grew about 6%. In the period from November 8 through December 31, the DJIA grew over 7%. Just like the political pundits who predicted Hillary would win, the economists calling for a ′Trumpocalypse′ were just as wrong.
The market flirted with 20,000 several times since November 8. But, perhaps investors held back until after Barack Obama was officially out of the White House before setting a new record. After the first couple of days of the Trump administration began making good on its campaign promises, and even some approval polls started showing improvement, investors became confident in President Donald Trump.
There are still some who are afraid. Recent news stories about some major land purchases in Idaho, Montana and in west Texas by Silicon Valley billionaires show that the wealthy are in doomsday prepping mode. Their main concern, for the moment, is an economic upheaval caused by robots displacing human workers. I call this dystopia the ′Zardoz′ scenario, where the wealthy build isolated enclaves to protect themselves from the teeming masses of angry mobs. Indeed, even with the election of President Trump, the fundamental problems which exist in our mixed economic system have yet to be addressed.
So, while the Dow Jones Industrial Average broke the 20,000 mark on Wednesday, I would exercise caution. President Donald Trump will make the business environment better for both companies and workers, which is giving many hope and optimism. But even President Trump warned during the campaign that the stock markets were inflated artificially by a bubble of cheap money pumped in by the Federal Reserve Bank. If he can delicately balance any cracks in that bubble with lower tax rates and fewer regulations which are strangling our economy, then there is no reason that the DJIA and other markets will continue increase in value. The early indications are that there is a growing confidence that President Trump will be able to do just that.
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