Investing in the Trump era—a Q&A with David Whitmore
03/20/17

We sat down with David Whitmore, Senior Strategist of Trader Education at E*TRADE Securities, to discuss the market amid a new presidential administration and Congress.

 

We’re in the midst of a long bull run, the stock market has been surging, and volatility is low. How would you respond to an investor concerned about the market’s behavior in recent months?   

I am a believer in technical analysis, and chart watchers would say that the market is behaving in a sound manner following a major breakout. The market climbed following the election, consolidated sideways for several weeks with low volatility, and continued its climb thereafter. 

Inevitably, markets are subject to shocks, downdrafts, and corrections. Currently, there is no inherent signal that a move is going to happen. In part, the Volatility Index (VIX), which measures market participants’ expectations of future volatility, reflects that sentiment–the VIX has been relatively low since late last year.

Now, this relatively low market volatility may seem at odds with the idea that many feel uncertain about what the future may hold under the new administration. But I have not seen compelling evidence in the charts to suggest a significant market move is on the horizon.

Should a market move begin to appear, the charts may give us a sign.

In many ways the 2016 campaign was unprecedented given its various twists and turns. How do you think the market digested it all?

The foundation for the market’s recent surge was in place prior to Election Day. Looking at it technically, the market broke out above the highs of early 2015 in July 2016, well before President Trump’s victory. Since the election, the party alignment between the executive and both branches of the legislature, and what that means for policy, helps explain some of the Trump bump, in my view.

Going into the election, the market expected more of the same with a Democrat as president and Republicans controlling the House and the Senate. But that expectation reversed following Trump’s victory. The market now has a presidential administration, House, and Senate that are aligned politically, and with clear bents toward less regulation and lower taxes.

For example, pundits point to potential repatriation tax reform, which could encourage money earned overseas to flow back into the U.S., as a catalyst for the broader economy. Such a measure could spur greater investments in labor and equipment here at home.

What would you say to someone looking for guidance on how to navigate these markets relative to all the political and economic noise in recent months?

First, investors focused more on the long-term should invest in accordance with their goals, time horizon, and risk tolerance. A long-term, asset-allocated investment plan does not involve going in and out of investments for short-term swings.

Importantly, we also believe investors should not be overly concerned about–or react to–what the market is doing today or tomorrow. Focus on building a pie of assets that grows over the long run within an appropriate risk tolerance.

However, there is a dedicated population of active traders that monitor each tick of the tape and market move, staying glued to their platforms and newsfeeds. For a trader who wants to pick stocks–there’s a lot to learn.

It’s always wise to pay attention to market developments. Learn the techniques of understanding a stock chart. Dig into a company’s quarterly earnings reports, or find analyst research. There are many tools on the E*TRADE website to help support these efforts. We also offer educational resources that can help empower investors as they move through their financial lives.

This goes for everyone: Investing is a life of learning.

David Whitmore will be speaking at E*TRADE’s education days, which offer complimentary education to investors and traders of all experience levels. Click here to learn more.   

 

VIX® is the ticker symbol for Chicago Board Options Exchange (CBOE) Volatility Index®. The index, also called the fear index, is calculated by CBOE and generally measures expected volatility of the U.S. market in the next 30 days. The higher the number, the more bearish the market is in general. The VIX is used to calculate the put/call ratio.