With the passing of the election last month, expectations in place before the election seem to have been turned on its head. Dire forecast were anticipated if Trump were to somehow pull out a win. Fast forward to a month past election day and current market sentiment is far from what most expected and the equity market is reflecting this in its performance with the S&P 500 Index up 8.4% from the 11/4/2016 Friday close. The positive equity market performance is showing up in sentiment measures as well. Today's release of the University of Michigan's Consumer Sentiment Survey also reflected an improvement in sentiment. Econoday noted,
"Post-election confidence continues to build, lifting consumer sentiment by more than 4 points to a 98.0 level that hits the very outside of the Econoday range and is 1 tenth away from the index's recovery peak hit last year. Consumers specifically cite expectations of new economic policies as the biggest positive."
From a market perspective investors appear to be rotating out of the more defensive and income producing stocks (and bonds) into stocks that will participate in an environment of faster economic growth. Top performing sectors in the S&P 500 Index since the election are, financials (+21.9%), industrials (+13.3%), energy (+13.0%) with the laggards being utilities (0%), staples (+.8%) and REITs (+3.4%).
This rotation out of the defensive equities is showing up in the lagging performance of the Dow Dogs. The Dogs of the Dow strategy is one where investors select the ten stocks that have the highest dividend yield from the stocks in the Dow Jones Industrial Index after the close of business on the last trading day of the year. Once the ten stocks are determined, an investor invests an equal dollar amount in each of the ten stocks and holds them for the entire next year. As can be seen in the below table, the average return of the Dow Dogs over the last month equals 1.9% versus 4.7% for the SPDR S&P 500 ETF and 6.6% for the S&P Dow Jones Industrials Index itself.
Whether or not we do or do not view favorably the outcome of the election, as investment managers, we continue to position our clients in sectors and market segments that might outperform under a Trump administration. This led to our positioning of client portfolios into stocks and sectors that might outperform under a faster economic growth environment.