Stock Market Insights: Market Trends, Opportunities & Election Impact

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Photo courtesy Richard L. Baker

As I approach my fiftieth birthday later this month, I’ve never been more appreciative of a good chiropractic adjustment to get me back in line. This might be a time to make a slight investment adjustment, too.

To say May was an eventful month for the market is an understatement. Investors navigated around the end of first-quarter earnings, record highs for the market, elevated volatility in fixed-income and currency markets, and increased political uncertainty stemming from former President Donald Trump’s conviction. Overall, markets shrugged off all this news, and the S&P 500 ended May above where it ended March.

The S&P 500 rose around 5% in May, coming in well above the average May return of only 0.2% since 1950. The rebound back to record highs also completely reversed April’s 4% drop. This year, the S&P 500 posted its 24th record high, led by a handful of mega-cap stocks that rose on strong earnings. To prove this point, the chipmaker NVIDIA made up just over one-quarter of the S&P 500’s May gain alone.

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This might be a good time to adjust portfolios. To build an investment strategy that beats the market, you must identify trends and strengths. Here are some trends I see;

  • Consumer discretionary (products or services people want but don’t need) and healthcare sectors have consistently lagged the broader market this year. Rising costs are beginning to limit consumer spending, and the Medicare Advantage payments mess is holding back healthcare. I am downgrading consumer discretionary and healthcare to underweight from neutral. Consumer discretionary and healthcare stand out as expensive with their weak performance this year.
  • Consumer staples (products people need, such as food and hygiene) are gaining as investors move more defensive in their holdings. I have upgraded consumer staples to neutral from underweight.
  • Industrial stocks (machinery, equipment, and supplies) have been keeping pace with the overall market for most of the year because of increased infrastructure and defense spending. I have also upgraded industrials to overweight from neutral because the recent pullback in industrials could be a buying opportunity.

Markets tend to be less exciting between Memorial Day and Labor Day, with the S&P 500 having an average increase of 1.8%. The S&P 500 as a whole is expensive right now compared to history, but it may justify it if strong earnings start coming from sectors other than large-cap tech and with an eventual Federal Reserve rate cut.

I am being asked about the presidential election in every meeting I have. The market impact of the election is impossible to predict. Still, we know the differences between Trump and Biden are widest in foreign policy, immigration, regulation, taxes, and trade, so stocks tied to those issues could see big swings. History tells us that volatility tends to pick up in the early fall during election years and usually rallies right after the election, regardless of which side wins.

Getting a chiropractic adjustment still scares me a little bit, but I’m always thankful afterward. An investment adjustment might be a little scary, too, but you might be grateful later. I’m not upset about turning fifty, but I could have done without the AARP letter I got yesterday.

Have a blessed week!

www.FerventWM.com

Dr. Richard Baker, AIF®, is the founder and executive wealth advisor at Fervent Wealth Management.

Securities and advisory services offered through LPL Financial, a registered investment advisor, Member FINRA/SIPC.

Opinions voiced above are for general information only & not intended as specific advice or recommendations for any person. All performance cited is historical & is no guarantee of future results. All indices are unmanaged and may not be invested directly.

The economic forecast outlined in this material may not develop as predicted & there can be no guarantee that strategies promoted will be successful.

Fervent Wealth Management is a financial management and services entity in Springfield, Missouri.

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