Keep politics out of your portfolio. That's the brutal lesson partisan investors have learned since President Donald Trump was elected on November 8, 2016. Since Election Day, broad U.S. stock indices have rallied between 18.5% and 26%.
Those are staggering returns considering the media continues to insist this rally cannot last:
- NYTimes, December 16, 2016: "The stock market looks awfully expensive since the Trump rally"
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CNBC, March 22, 2017: "Trump's health-care plan failure could trigger a market correction"
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CNN, May 17, 2017: "Dow has worst day in 8 months as Trump drama rattles market"
To be sure, there have been bumps in the road. Stories of the stock market being "expensive," rumors of Trump impeachment, and the GOP's initial healthcare bill failure, have been set-backs. As the post-Election Day rally numbers allude to, these modest selloffs were also excellent buying opportunities, despite the comical handwringing of partisan news outlets.
Not Trump, It's The U.S. Economy
The not-so-funny aspect of this stock market rally is how each-and-every drama out of the White House is cited as the next catalyst for a stock market decline. This is noise. Stocks are heading higher because U.S. corporate earnings per share, for the S&P and Nasdaq, are up +15% and +17%, respectively, year-over-year.
Another not-so-trivial reality: The U.S. economy is accelerating. Consider the facts. Year-over-year GDP growth peaked at 3.3% in the first quarter 2015, fell to 1.3% by the second quarter of 2016, and has since rebounded to 2% for the first quarter of 2017. We expect economic growth to pick up throughout the balance of 2017.
More Data: Sector Performance
But forget all of these facts for a moment and simply consider the outperforming sectors within the U.S. stock market. Below is today's Chart of the Day, from today's Early Look written by Hedgeye CEO Keith McCullough, showing each sector's performance relative to the S&P 500.
As you can see, our favorite sectors Technology (XLK) and Consumer Discretionary (XLY) continue to outperform. This is exactly what you'd expect to see as U.S. economic growth picks up, since both are highly tethered to a rebound in U.S. consumer spending.
Here's some useful advice. Tune out all the noise, check your political proclivities at the door and simply track the U.S. economy.
