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AAM Viewpoints – Did Bears Get Trumped?

It would seem some fervent bears might have a political agenda. First, Donald Trump’s election victory in November was expected to trigger a massive selloff. When that prediction failed, another political event became their timeline for market upheaval: the inauguration. But, the major stock averages went on to set all-time record highs highlighted by the DJIA crossing 20,000. Bears have cited numerous reasons for their concerns: valuations, uncertain political winds of the new administration and trade. Arguably, valuations are on the historic high side, but the economy is in the midst of a strengthening cycle evidenced by growing earnings and rising consumer confidence. The market can still steamroll ahead if investors perceive that earnings are accelerating and that there are economic glad tidings on the horizon. I might argue that when earnings growth ultimately drives down the S&P 500 multiple (now above 21) to a historical norm, the bull market may have run its course.

President Trump has moved quickly to execute on his campaign initiatives. His first weeks in office have left little doubt of his intentions to deliver on his campaign promises, most of which focus on economic growth. Dismissing over-reaching regulations, for one, could benefit such core industries as energy, financials, health care and industrials. And, his promise to lower business and personal taxes could be resounding positives for both Wall Street and Main Street. As for trade, consider that the dollar has weakened against other currencies. This may be a sign that the Trump Administration’s trade policy might not be perilous for global economies as some critics have argued.

Most importantly, the stock market’s internal behavior offers good reason to be optimistic about the outlook. Trump’s victory in November sparked a substantial rally that accelerated market and sector trends that had taken form many months earlier. In February 2016 stocks and commodities bottomed convincingly. This was the true turning point in market psychology that found investor focus shifting from worries about recession to anticipation of an economic revival. Inflation has decidedly replaced recession as a central theme. The burgeoning leadership in traditional cyclicals and commodities a year ago has aligned well with President Trump’s growth initiatives. And, when dovish monetary policy mixes with sound fiscal and economic agendas from Washington, this potent elixir can deliver surprisingly higher levels for the major stock averages. Growth is beating value handily year to date as investors demonstrate a heightened willingness to leave the “safe haven” of defensive value positions and migrate into areas that offer the most exciting earnings growth prospects. One more point to consider: the Dow Jones Transportation Average maintains a substantial lead versus the Dow Jones Industrial Average on a one-year basis. This presents Dow Theory confirmation that the technical foundation is in place for continuation of the bull run.


CRN: 2017-0206-5794R

Opinions in this piece are those of Peroni Portfolio Advisors and are not necessarily that of AAM. 

This commentary is for informational purposes only. All investments are subject to risk and past performance is no guarantee of future results. Please see the Disclosures webpage for additional risk information at commentary-disclosures. For additional commentary or financial resources, please visit



Effective, June 10, 2016, please note that Gene Peroni left Advisors Asset Management (AAM) to become President of Peroni Portfolio Advisors, Inc. Peroni Portfolio Advisors, Inc. ("PPA") is an investment advisor independent of AAM.