At the outset, I want to make clear that I have no intention of discussing politics other than strictly from an investment and market point of view. It would be impossible to ignore the subject altogether, however, since the stock market marked a decisive shift ever since the presidential election. Despite initial fears of unpredictability, inexperience and trade wars, the market rallied in November as it embraced a new theme of lower taxes, decreased regulation and infrastructure stimulus spending.
A significant cut in the corporate tax rate could increase earnings in a very real way. That would be on top of already-improved third quarter earnings that I touched upon last month. Repatriation of overseas cash would also be accretive to earnings. Even the recent spike in interest rates has been viewed as simply a normalization, still low by historical standards, and a boon to certain industries such as banking.
With all of that said, attractive stocks are still difficult to find. The market is expensive on a trailing basis and on more reliable measures. It is important not to get too carried away with enthusiasm. The market closed the month virtually unchanged from its July high and has even now advanced all of 3% in the 19 months since its April 2015 high. Recall the similar post-Brexit rally that petered out shortly thereafter.
I maintain that the best way to balance these various factors is to employ a value approach rather than chasing stocks and speculating.
~~~~Michael Berlin can be contacted at email@example.com and at (631) 629-4928 .
The information included in this article is not intended to be used as a basis for making investment decisions nor should it be constructed as a recommendation to buy or sell any specific security. Consult your investment professional for additional information and guidance.