As we mentioned in previous commentaries, Barron’s Big Money Poll represents the thoughts of large U.S. investment advisors. Their opinions and forecasts are what is discounted in stock and bond prices. We think that is important.
The recent fall edition of the Poll didn’t have many surprises but is still worth mentioning. Here are five Poll questions we think are relevant:
– Which major equity market will perform best in the next 12 months? Large caps 39%, 34% mid caps, and 27% small caps. We agree large caps should do best because they are less susceptible to higher interest rates which we expect to be sticky over the next 6-12 months. Eventually, market interest rates should come down following the Fed’s easier monetary policy.
– Will the “Mag 7” stocks lead the market in the next six months? Yes 31%, 60% no. We agree with no. The market will continue to broaden out, in our view. The Mag 7 stocks should appreciate, just not as much as other stocks. Their valuations are higher but their expected earnings growth is too.
– Which best describes your outlook for the U.S. economy in the next 12 months? 59% soft landing, 25% no landing, 16% recession. Since our economy remains strong but is decelerating, we are in the soft landing camp.
– How would you describe the Fed’s current policy stance? 49% just right, 35% too tight, 16% too loose. With inflation closer to target, we expect the Fed to continue to cut rates in 2025 and maybe even 2026. We think the Fed is on course for success in bringing about a soft landing.
– What economic issues should be the highest priority for the next administration? The top three are debt reduction 50%, entitlement reform 14%, and less regulation 13%. Our deficits are out of control and are the biggest long-term financial problem for our country – and for investors. Which future administration will finally address this problem?
Overall, there is a definite sense of optimism in the Poll which is good news. Managers are bullish. They have their fingers on the trigger so what they think matters. We take comfort that their positive forecasts should result in bullish behavior.
TRUMP TRADES HAVE BEEN LEADING THE
MARKET – SHOULD WE FOLLOW?
Stocks surged last week in response to the election with consumer discretionary, energy, financials, industrials, and tech leading the way. It was the best week of the year for stocks with the S&P 500 up 4.7% and NASDAQ up 5.7%. Small caps (Russell 2000) were up 8%.
“Trump trades” are widely given credit for leading the rally. In fact, Trump trades were given credit prior to the election when Trump was tightening the polling gap with Harris. What are Trump trades? Here are a few of the more popular ones:
– Buy Trump Media and Technology Group stock (DJT) which runs his favored social media. This stock is extremely volatile and rallied sharply into the election but faltered late last week.
– Buy Bitcoin (easier ride from regulators), gold (global tensions) and the dollar (which should benefit from tariffs).
– Sell longer-term U.S. Treasuries (due to higher deficit concerns). Notably, and quite incredibly, long-term Treasury yields actually fell last week.
– Buy healthcare and prison stocks; sell clean-energy stocks.
– Buy banks (less regulation).
– Buy U.S. stocks while selling the rest of the world.
Should investors pile into Trump trades? No, stay away. The premise for some of these trades is faulty. Selecting which Trump trades turn into Trump investments is just as difficult this time around as it was in 2016. They might seem obvious now but they did back then, too. Many Trump trades after the 2016 election were dead wrong.
We agree, however, that Trump is bullish for stocks. But the market will hopefully grind higher due to fundamentals, partly due to his actual policies, not premature judgments on what might happen. Buying Trump trades is mostly speculation which we avoid.