Good Morning,

Politics aside, the election of Donald Trump as the 45^th President of the United States resulted in significant changes to the investment landscape. Financial markets are now pricing in higher inflation and interest rates for the US economy.

The yield on the 10 year US Treasury bond rose from 1.70% to over 2.20% since the election, one week ago. In response, prices of dividend paying stocks (i.e. utility, telecommunication, and consumer staple companies), preferred stocks, and bonds are falling. Today markets have priced in an uncertainty premium, rather than just expectations of more Fed interest rate hikes.

A Trump presidency will favor different economic sectors based on policies implemented by the Trump team. Proposed infrastructure spending should benefit industrial and basic material companies. Deregulation and higher interest rates should benefit the financial industry. Small and mid-sized companies may disproportionally benefit from a decline in corporate tax rates.

At Haven, we began repositioning portfolios to become more defensive earlier this year. Large portfolios benefited from positions in short-term, discounted, high yield bonds. However, rising inflation expectations, since the election, caused declines in many preferred stock positions, even as equity markets rallied. We believe interest rates may have risen too far, too fast. Hence, we decided to keep most of the preferred stocks, which sport dividend yields ranging from 5.3% to 6.9%. Please remember that prices of preferred stock do fluctuate based on the level of interest rates.

Today, our exposure to equity markets remains low. Absent a large tax cut, equity valuations remain elevated. As many of you know, high equity valuations resulted in the equity market trading sideways over the past two years, with markets failing to make material new highs.

Markets are responding to rumors and speculation. We must remember that campaign promises don’t always materialize. Time will tell all. One thing we can expect is uncertainty in the market as a response to the new regime, and markets do not like uncertainty.

As always, we will continue monitoring all aspects of the financial markets and attempt to make the decisions most beneficial to you, our valued clients.


Our Partners