The second longest running bull market run over the last century will turn eight years old on March 9, 2017. On March 9, 2009, the S&P opened at 676.53, and closed on February 27, 2017 at 2369.73. Over that same time, the DOW opened at 6547.05 and closed at 20,837.44, registering its twelfth consecutive record close. Both indexes have tripled in value over that timeframe, creating trillions of dollars in wealth for investors. With the enthusiasm this rally is generating (might we hear Alan Greenspan whispering from retirement about “frothiness”?), the obvious question weighs on investors and advisors: Is the more recent “Trump Bump” sustainable giving new legs to this rally that is getting “long in the tooth”, or will the challenges of governing overwhelm the Trump Administration leading to increased volatility and the cyclical 20% to 50% correction postulated by John Bogle and others?
The ongoing debate over the philosophies of John Maynard Keynes and Milton Friedman continues to rage in government and academic circles. The Obama administration came into office facing the worst economic meltdown since the Great Depression. Although the “tech wreck” of 2000 followed by recession and the 9/11 attacks was very painful for the Bush Administration, the financial meltdown of 2008 attacked the very heart of our economic system, paralyzing credit for home purchases, business inventory and hammering almost every personal and business balance sheet in the country. The Obama solution focused primarily on government spending (TARP, Solyndra & “shovel ready projects”) and intervention (General Motors bailout) as a solution. As a result, US businesses were challenged not only by the market shock, but also faced the triple storm of higher taxes, more government regulation and much higher healthcare costs. Economists continue to debate whether this slow growth with flat wages for the middle class is a “new normal,” or if the policies themselves weighted down GDP growth.
Donald Trump comes to office challenging long held assumptions of both Democrats and Republicans. Although detailed plans have yet to be revealed, it appears that his solution will be closer to that of John F. Kennedy and Ronald Reagan. Lower taxes, reduced regulation and more reliance on private industry as the engine of growth appears to be his hope in trying to provide the atmosphere where GDP growth can escape the tepid 2%+/- of the last ten years (Bush & Obama), and get back to the more traditional 3%+ of previous decades. This article is being written on the eve of President Trumps first State of the Union message. We should have a pretty good idea by the August recess about whether the Trump administration will pass health care reform and tax reform. If either fails, then we should expect more volatility and perhaps a major correction. If both succeed, at least in the near term, then a DOW at 23,000 could be achieved by the end of the year.
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