Since Donald Trump won the US elections we have seen the financial sector rally the most it has in about 50 years. It’s really quite amazing, and the outlook for the financials has improved in the last few months. But not enough to really justify more rallying. Things never go up in a straight line on the stock market.
This week several equity markets such as the DOW, the S&P 500 and the Russell all hit fresh new highs. But one thing that has stood out, is the massive rally in the US financial sector which has now reached its highest ever level since 2007, and right now as you read this it’s on track to rally for five weeks straight. Again that has not happened for decades.
This is a little bit of cause for concern as investors are worried that in 2017, the financials might need to correct. The rallying we have seen in the financial sector might have been a situation where investors got too enthusiastic too quick. That can often lead to catastrophes down the road.
There has been a huge amount of sector rotation in the last few months. And without even realizing some investors are not seeing the bargains out there, for what they are. What you have to remember is that there are several sectors like healthcare and technology that could be worth a look. The reason is because while the rest of the market has been rallying these sectors have not had much love, and in the coming months or early in 2017, they may need to play catch up.
Investors who thought stocks would crash if Donald Trump got in, have been not only proven wrong, but lost a whole stack of money on those bets. People do see Trump as a more businessman president, but some of the bigger investors on Wall St. are now coming around and see that this could be very good for the economy and that in turn could be a very good situation for Wall St and the global stock markets. The fact that stocks rallied means a lot. Because it’s not about Donald Trump’s policies that matter, it’s how investors will interpret them.
One key driving benefit of Trump getting in would be the trucking industry. That would be a key beneficiary as he does claims he is going to try to cut the current 25 corporate tax. A lot of investors are loving this, and hope that Mr. Trump does actually follow through on this promise. It’s obvious that lowering the corporate tax in America is going to be one of the biggest positives coming out of Trump’s proposals.
In talking about the US financial sector, there has been a very violent rally since the EU vote for Britain to leave the European Union (or EU) and it might be worthwhile to look past this sector.
It is clear and obvious that investors are now starting to move to sectors that have not taken off like a rocket, but still have solid fundamentals. This does include healthcare and technology sectors, which have clearly underperformed in the last few months. Especially with the US elections results.
This does not mean the financial sector will crash, but the rally we have just seen, looking back in history is unsustainable. Some individual bank stocks over the long term still look attractive. It will also depend on the Trump and his harsh policies he is thinking about imposing on the bigger banks come 2017.