Election Positioning
Leading up to the election on Tuesday, everyone was preparing for two outcomes: a Trump win or a Harris win.
As you know, Trump won.
As an astute reader of Tired & Rich, you know the data is clear: Regardless of who wins, the markets generally do well.
But there’s a keyword in that sentence I wrote above, generally.
Wednesday’s market action proves this and, in some ways, is a leading indicator of what we can expect from markets in the coming years.
What Happened
Within the S&P 500, 11 different sectors ultimately represent the market.
Some sectors are bigger than others, and professional investors use them to increase or decrease their exposure to certain parts of the market.
And wow, yesterday was wild.
Here is a 5-day chart I put together for you to see what happened:
You’ll quickly see there was a relatively tight trading range leading up to the election, and once news broke that Trump had secured victory, the market sectors diverged.
Energy led the way with a 6% gain on the week, while Real Estate was down 3.12%.
That’s a spread of over 9% between the market leader and the loser, post-election.
So, while it’s true the S&P 500 was up around 2.5% yesterday, there was a substantial performance spread within the market itself.
When we look at individual companies inside the S&P 500, the performance is even greater.
Let me unpack a little bit more of what’s going on there.
Energy—Its huge gain was pretty obvious because Trump is pro-US energy. The energy sector as a whole viewed this as a win, and investors went in big.
Finance: US banks fund US businesses, which are doing well right now. Yesterday, Goldman had its biggest day of S&P 500 outperformance since 2009. Trump is largely seen as pro-business, and with a strong economy, US banks should flourish.
Tech—This sector was middle of the pack, which I find interesting. I don’t foresee a major change in the AI story that is rewriting the world, nor am I too surprised that it’s mid-pack in terms of positioning. Oddly enough, some headwinds from the FTC and regulation could depress some of the sector’s demand. However, these companies are still growing revenue at 20-30% per year.
Industrials—The railroad company Union Pacific was up almost 6% yesterday. Heavy equipment company Caterpillar was up nearly 9%. Defense contractors, in general, were up over 3%. The industrial sector benefits significantly from an emphasis on US infrastructure buildout (manufacturing and jobs) and national security interests. The Trump administration has focused on decreasing reliance on the rest of the world.
The Losers—I am going to group the two big losers of the day, Utilities and Real Estate. This is purely an interest-rate play. The economy is good, and furthermore, investors think Trump will be good for the economy. Thus, the Fed will keep interest rates higher than we initially thought. Some of Trump’s policies may also prove to be inflationary, which was reflected in the bond market.
Closing Out
You can see that all 11 sectors traded in a relatively tight range in the days leading up to the election. I would imagine that as the days turn into weeks, we’ll see the market revert to a tighter range again.
But what’s interesting about yesterday’s trading day is that this divergence of returns can and does happen over time.
As investors, you need to understand these trends, as they can lead to massive gains or lost opportunities if you miss out.
Investing in the tech trend in 2024 is like asking a kid if they like ice cream. Obviously, kids love it, and it’s stupid not to invest in tech.
But it wasn’t always that way.
Here’s a 25-year chart comparing financials and tech.
You’ll see the tech stocks fell off the face of the earth following the dot-com bubble, which led to a massive outperformance from the financial sector for 8 years.
Enter the Great Financial Crisis, where our financial system literally broke.
Both sectors followed each other for almost ten years until the platform internet companies started dominating.
And since late 2018, tech stocks have been the place to be.
Here’s the point of all this:
You don’t need to be a market wizard, but you do need to understand your portfolio.
You need to:
- Know what you own.
- Know why you own what you own.
- Know when you should change your portfolio.
If you don’t know what’s inside your portfolio, how can you possibly make great investing decisions?
It’s anyone’s guess what will happen over the next four years, but the market told us yesterday that things will most likely look a bit different.
For you, the starting point is understanding your portfolio and picking where to go from there.
