Please read our Terms & Conditions before reading this article. By continuing to read this article, you acknowledge and agree to the linked Terms & Conditions provided.
As it turns out, the Trump rally has continued strong since the US Election, with all major US market indices posting historic highs on Monday, 21 Nov 2016.
The Dow Jones Industrial Average has posted five historic highs since the Election and the S&P 500 finally cracked an all time high on Monday as well. It seems the market is still euphoric over the prospects of fiscal stimulus and tax relief for businesses under a Trump presidency.
What has added fuel to the rally in the past week is the market expectation that OPEC will come up with some sort of agreement to slash oil production in their upcoming meeting on 30 Nov 2016. This has pushed oil prices over $48 USD a barrel, recovering over 10% in the last week from an 8-week low of around $43 USD a barrel. This is despite US commercial crude oil inventories increasing by another 5 million barrels for the week ended 11 Nov 2016. Energy stocks have led the rally in the last couple of days, along with commodity producers. To a lesser extent, the Australian share market has followed broader trends, rising to a 1-month high at the end of Tuesday (but has not broken any records yet!).
I am still of the view that this rally is not well supported by any fundamentals. Any benefits which the market expects to see from Trump policies are likely to take years to materialise. Potential production cuts from OPEC, which have been discussed for many months now, is purely speculation (which is also why I have personally stayed away from energy and commodities stocks for at least the last 12 months). I think the markets have priced too much of this optimism into commodities and stock prices.
In fact, I have taken advantage of the recent rally to realise some profits. Until last week, my largest shareholding was in Commonwealth Bank [ASX:CBA] which made up just under half of my personal shares portfolio. I started accumulating back in August, after they went ex-dividend, at an average price of $71.95. I sold out last week at $77.05, with a return of around 7% – not a bad result for 3 months.
With the US stock market hitting record highs, I have also bought into a BetaShares US Equities Strong Bear Hedge Fund [ASX:BBUS] which is negatively correlated to the S&P 500 index (the fund profits from a declining US stock market). The BBUS holding currently makes up about 10% of my portfolio. This is after halving my shareholdings from selling my CBA shares.
I most definitely feel the market is too hyped up right now and have reallocated my capital accordingly. It will be interesting to see how long this rally will last. Quite happy to wait around for the next buying opportunities when the market eventually corrects itself.
INVESTCOST 