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Optimism after Trump win fades … the rising costs for everything … a way to keep winning

The market optimism spurred by Trump’s election is already starting to fade.

Investors greeted Trump’s election victory, as well as the sweep of Congress, with enthusiasm. Promises about deregulation, pro-business policies and tax cuts made investors anxious to get into market gains early.

The exuberance is waning as folks remember we still have a lot unresolved.

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The across-the-board tariffs Trump promised are potentially inflationary. The geopolitical environment seems to be getting more unstable.

Plus, the market is expensive. The forward price to earnings ratio for the S&P right now is sitting at 23.88. That’s not the highest it has ever been, but it’s certainly not cheap.

Recent data from the American Association of Individual Investors (AAII) supports the bearish turn. If you’re not familiar, every week AAII, an association of mostly retail investors, asks its members a simple question: Are you bullish, neutral or bearish?

Here are the highlights from their latest data, released Thursday:

• Bullish sentiment, expectations that stock prices will rise over the next six months, decreased 8.6 percentage points to 41.3%.

• Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, increased 3.7 percentage points to 25.5%.

• Bearish sentiment, expectations that stock prices will fall over the next six months, increased 4.9 percentage points to 33.2%.

• Bearish sentiment is above its historical average of 31.0% for the first time in 10 weeks.

The Cost of Everything

Adding to the unease may be that everyday expenses haven’t stopped rising.

For example, you might have seen the photo of President-elect Trump enjoying McDonald’s with Elon Musk, J.D. Vance and Robert F. Kennedy, Jr. The picture reminded me that the cost of a McDonald’s cheeseburger has risen 150% since 2019.

Holiday shoppers are feeling the pinch too. According to pickyourownchristmastree.com, the median cost of a real Christmas tree was $76 in 2019. By 2022, that cost had risen to $93. Costs went up another 10% in 2023 and increases of 5% to 15% are expected this year.

Playing Offense in an Expensive Market

I hope you’ve been able to take advantage of the bull market the last two years. As I write Friday morning, the S&P 500 is up 24% for the year.

If the current gains hold through the end of the year, 2024 will close with gains of more than 20%. And since 2023 finished with gains of 26%, this would be the first time the S&P 500 will have had gains of more than 20% in consecutive years since 1998 and 1999. The chart below shows the S&P’s gains since January 2023.