Many people are wondering what specifically caused the market to have its best week of the year last week. Of course, there’s not only ONE reason, but it could be attributed to a combination of the following: 1) The election is behind us, and that’s one less uncertainty for the markets. 2) The perception that Trump will be a business-friendly and market-friendly president. 3) The Fed cutting rates and pumping liquidity into the system, thus creating an equity-friendly environment. 4) The strong seasonality that we normally see from November-January. 5) The strong earnings that continue to come out, as this is a secular bull market powered by the growth in AI.
I think there’s a reason bigger reason called psychology. I underestimated how many people were underinvested, heavily in cash, or aggressively hedged ahead of the election. The reasons they gave included: 1) If Harris wins, the market is going to crash. 2) If Trump wins, the market is going to crash. 3) If the election is not decided by election night, it would lead to a major decline. Therefore, when none of these events occurred, it helped to fuel a “chase” back into the market, as many people were experiencing FOMO (fear of missing out).
For many weeks ahead of the election, I discussed for my Educational Members to not mix your politics with your investing. I even wrote about it publicly in this blog post. For the most part, it doesn’t matter who the president is because the market mainly moves on earnings and interest rates. Earnings are strong and the interest rate picture is favorable. In addition, the major indexes were above their key moving averages (showing continued institutional support), and many of the growth leaders were acting well ahead of the election.
If you did well in the markets last week, congrats! Stay humble, stay focused, keep working hard, and don’t get cocky. The second you think you know it all, the market has a unique way of humbling you. Please keep in mind this is a strong market and we’re not THAT smart. If you struggled, don’t beat yourself up! Always make sure your self-talk is strong. Write down your mistakes and be honest with yourself. If you got too caught up with the emotions of the election, work on making the proper adjustments next time a similar event occurs. Remember, don’t focus on what you THINK the market should be doing, focus on what it is ACTUALLY doing.
I can be reached at: jfahmy@zorcapital.com.
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